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Rural Microfinance And Client Retention: Evidence From Malawi

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  • MARC J. EPSTEIN

    (Jesse H. Jones Graduate School of Business, Rice University, 6100 Main Street, MS-531, Houston, TX 77005, USA)

  • KRISTI YUTHAS

    (Department of Information Technology, Portland State University, USA)

Abstract

Microfinance institutions (MFIs) have largely focused on urban markets, leaving the rural poor underserved. The high costs of serving rural markets has often been identified as the key impediment to serving these markets, resulting in saturation and heavy competition in urban markets while poor rural clients remain unserved. In this paper, we provide evidence from a sample of over 10,000 microfinance loans in Malawi, that the cost argument has an important flaw. Results show that client retention, a critical aspect of financial sustainability, is significantly higher in rural markets. In addition to being a key financial indicator in an industry where annual client exit rates can exceed 50 percent, client retention is also a key measure of social impact. By operating in rural markets, MFIs may be able to increase both social impact and financial performance.

Suggested Citation

  • Marc J. Epstein & Kristi Yuthas, 2013. "Rural Microfinance And Client Retention: Evidence From Malawi," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 18(01), pages 1-17.
    • Handle: RePEc:wsi:jdexxx:v:18:y:2013:i:01:n:s1084946713500064
    DOI: 10.1142/S1084946713500064
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    References listed on IDEAS

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    1. Pagura, Maria E. & Graham, Douglas H. & Meyer, Richard L., 2001. "Determinants Of Borrower Dropout In Microfinance: An Empirical Investigation In Mali," 2001 Annual meeting, August 5-8, Chicago, IL 20568, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Copestake, James, 2002. "Unfinished Business: The Need for More Effective Microfinance Exit Monitoring," Working Papers 23752, University of Sussex, Imp-Act: Improving the Impact of Microfinance on Poverty: Action Research Program.
    3. Anis Chowdhury, 2009. "Microfinance as a Poverty Reduction Tool—A Critical Assessment," Working Papers 89, United Nations, Department of Economics and Social Affairs.
    4. Pearlman, Sarah, 2010. "Flexibility matters: do more rigid loan contracts reduce demand for microfinance?," Research Department working papers 214, CAF Development Bank Of Latinamerica.
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    Cited by:

    1. Ivar Kolstad & Armando J. Garcia Pires & Arne Wiig, 2017. "Within-group heterogeneity and group dynamics: analyzing exit of microcredit groups in Angola," Oxford Development Studies, Taylor & Francis Journals, vol. 45(3), pages 338-351, July.
    2. Mathilde Bauwin & Walid Jbili, 2017. "Loyalty, trust, and glass ceiling: The gender effect on microcredit renewal," WIDER Working Paper Series 101, World Institute for Development Economic Research (UNU-WIDER).
    3. Md Aslam Mia & Hasanul Banna & Abu Hanifa Md Noman & Md Rabiul Alam & Md. Sohel Rana, 2022. "Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(1), pages 55-84, March.
    4. Mathilde Bauwin & Walid Jbili, 2017. "Loyalty, trust, and glass ceiling: The gender effect on microcredit renewal," WIDER Working Paper Series wp-2017-101, World Institute for Development Economic Research (UNU-WIDER).
    5. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    6. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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