Should all microfinance institutions mobilize microsavings? Evidence from economies of scope

Delgado, Michael S.; Parmeter, Christopher F.; Hartarska, Valentina; Mersland, Roy

doi:10.1007/s00181-014-0861-3

Cited by 31 publications

(35 citation statements)

References 38 publications

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“…Further, weaknesses in governance and greater barriers to access funding limit the ability of nonprofit MFIs to exploit growth opportunities and generate economies of scale, and since they are less regulated, Delgado et al. () suggest that nonprofit MFIs are also limited in generating economies of scope. High interest rates may also reflect the higher exposure of nonprofit MFIs to local systemic shocks.…”

Section: Resultsmentioning

confidence: 99%

“…Moreover, some nonprofits might engage in nonfinancial activities, such as financial literacy training, and combine them with financial services, and thus interest rates could also reflect the cost of these services, as part of some cross-subsidization strategy, making the price structure more rigid. 23 Further, weaknesses in governance and greater barriers to access funding limit the ability of nonprofit MFIs to exploit growth opportunities and generate economies of scale, and since they are less regulated, Delgado et al (2015) suggest that nonprofit MFIs are also limited in generating economies of scope. High interest rates may also reflect the higher exposure of nonprofit MFIs to local systemic shocks.…”

Section: Concentration and Loan Ratesmentioning

confidence: 99%

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Competition, Loan Rates, and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

Baquero¹,

Hamadi²,

Heinen

2018

J of Money Credit Banking

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We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for‐profit and nonprofit MFIs in 67 countries over 2002–2008. Controlling for interest rate ceilings and other country‐specific factors, we first find that nonprofits are relatively insensitive to industry‐wide concentration changes, while for‐profits charge significantly lower rates in less concentrated markets. Second, we find spillover effects between the for‐profit and nonprofit segments. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.

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Section: Resultsmentioning

confidence: 99%

Section: Concentration and Loan Ratesmentioning

confidence: 99%

Competition, Loan Rates, and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

Baquero¹,

Hamadi²,

Heinen

2018

J of Money Credit Banking

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“…NGOs typically are only allowed to issue credit; they therefore remain "one-legged" credit institutions. Delgado et al (2015) find that most MFIs enjoy economies of scope when holding savings alongside credit provision, and Awan (2009) Offering savings accounts alongside credit is also important from a demand side perspective. Collins et al (2010) demonstrate that even people with a very low income demand savings products; they typically lack safe places to deposit their savings, and often use alternative and informal ways to save.…”

Section: Why Do Mfis Transform?mentioning

confidence: 99%

From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?

et al. 2017

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Microfinance, which pledges to provide financial services to people without access to banking, is chiefly run by non-governmental organizations (NGOs). Little is known about the extent to which the transformation of these NGOs into shareholder-owned and, most often, regulated firms affects the way microfinance institutions (MFIs) conduct their business. By applying the event study methodology to 66 MFIs that have transformed, we quantify the effect that transformation has on the MFIs' business models. Our results suggest that portfolio yield is driven down by 3.9 percentage points due to transformation, indicating that clients get more favorable interest rates. At the same time, MFIs are able to significantly cut down their operational expenses, of which 1.1 percentage points can be attributed to transformation. Other findings include a steep increase in commercial debt leverage and deposits, a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size. Profitability goes down in the short and medium term, while return on equity is driven up in the medium to long run. By exploiting within-MFI data, our approach goes beyond previous studies that mainly relied on between-MFI data. Overall, the results suggest that transformed MFIs become an attractive environment for investors, potentially encouraging a more profit-seeking behavior among transformed MFIs. Acknowledgements.We thank Victoria van Lennep and Li Yang for research assistance in data gathering data. We also AbstractMicrofinance, which pledges to provide financial services to people without access to banking, is chiefly run by non-governmental organizations (NGOs). Little is known about the extent to which the transformation of these NGOs into shareholder-owned and, most often, regulated firms affects the way microfinance institutions (MFIs) conduct their business. By applying the event study methodology to 66 MFIs that have transformed, we quantify the effect that transformation has on the MFIs' business models. Our results suggest that portfolio yield is driven down by 3.9 percentage points due to transformation, indicating that clients get more favorable interest rates. At the same time, MFIs are able to significantly cut down their operational expenses, of which 1.1 percentage points can be attributed to transformation. Other findings include a steep increase in commercial debt leverage and deposits, a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size.Profitability goes down in the short and medium term, while return on equity is driven up in the medium to long run. By exploiting within-MFI data, our approach goes beyond previous studies that mainly relied on between-MFI data. Overall, the results suggest that transformed MFIs become an attractive environment for investors, potentially encouraging a more profit-seeking behavior among transformed MFIs.Word count: 210

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“…Augustine et al (2016), Bassem (2009), Chakrabarty andBass (2014), Strøm (2009), Strøm et al (2014) and Vishwakarma (2017) find evidence that having female board members is associated with better financial performance. Gohar and Batool (2015), Hartarska et al (2015), Mori et al (2015) and Périlleux and Szafarz (2015) find similar results when focusing on social performance of MFIs. Having women on board thus has positive impact on both financial and social performance!…”

Section: Boardsmentioning

confidence: 52%

Determinants of the Performance of Microfinance Institutions: A Systematic Review

Hermes

Hudon

2019

Contemporary Topics in Finance

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Microfinance institutions (MFIs) generally aim at improving the access of the poor to financial services while at the same time being financially sustainable. But what do we know about how MFIs reach and combine these two goals? We carry out a systematic review of close to 170 articles discussing the determinants of the financial and social performance of MFIs. The review shows that the most important determinants addressed in the literature are MFI characteristics (size, age, type of organization), their funding sources, the quality of organizational governance and the MFIs' external context such as macroeconomic, institutional and political conditions. The evidence on these issues is rather mixed.Moreover, the direction of the relationship between these drivers and MFI performance depends on the context, particularly the country-specific context. Finally, there is a lack of consensus in the literature on the measurement of financial and social performance. Due to the complexity of the concept, we argue that social performance should only be assessed by using a multidimensional perspective. This can be done either by applying recent and holistic social performance measures such as the SPI4, or at least by using a combination of proxies, such as outreach, gender and rural measures. Burzynska, K., & Berggren, O. (2015). The impact of social beliefs on microfinance performance.

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Should all microfinance institutions mobilize microsavings? Evidence from economies of scope

Cited by 31 publications

References 38 publications

Competition, Loan Rates, and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

Competition, Loan Rates, and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?

Determinants of the Performance of Microfinance Institutions: A Systematic Review

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