Financial performance and outreach : a global analysis of leading microbanks
AbstractMicrofinance contracts have proven able to secure high rates of loan repayment in the face of limited liability and information asymmetries, but high repayment rates have not translated easily into profits for most microbanks. Profitability, though, is at the heart of the promise that microfinance can deliver poverty reduction while not relying on ongoing subsidy. The authors examine why this promise remains unmet for most institutions. Using a data set with unusually high quality financial information on 124 institutions in 49 countries, they explore the patterns of profitability, loan repayment, and cost reduction. The authors find that institutional design and orientation matter substantially. Lenders that do not use group-based methods to overcome incentive problems experience weaker portfolio quality and lower profit rates when interest rates are raised substantially. For these individual-based lenders, one key to achieving profitability is investing more heavily in staff costs-a finding consistent with the economics of information but contrary to the conventional wisdom that profitability is largely a function of minimizing cost.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3827.
Date of creation: 01 Feb 2006
Date of revision:
Banks&Banking Reform; Economic Theory&Research; Economic Adjustment and Lending; Investment and Investment Climate; Rural Finance;
Other versions of this item:
- Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages F107-F133, 02.
- NEP-ALL-2006-01-29 (All new papers)
- NEP-CFN-2006-01-29 (Corporate Finance)
- NEP-DEV-2006-01-29 (Development)
- NEP-FMK-2006-01-29 (Financial Markets)
- NEP-MFD-2006-01-29 (Microfinance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Gine & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2006.
Framed Field Experiments
00150, The Field Experiments Website.
- Dean Karlan & Xavier Gine & Jonathan Morduch & Pamela Jakiela, 2006. "Microfinance Games," Working Papers 936, Economic Growth Center, Yale University.
- Xavier Gine & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2006. "Microfinance Games," Working Papers 2102, The Field Experiments Website.
- Gine, Xavier & Jakiela, Pamela & Karlan, Dean & Morduch, Jonathan, 2006. "Microfinance games," Policy Research Working Paper Series 3959, The World Bank.
- Guinnane, T. & Banerjee, A. & Besley, T., 1993.
"Thy Neighbor's Keeper: the Design of a Credit Cooperative with Theory and a Test,"
705, Yale - Economic Growth Center.
- Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 491-515, May.
- Ashok S. Rai & Tomas Sj–str–m, 2004. "Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 217-234, 01.
- Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
- Besley, T., 1993.
"Savings, Credit and Insurance,"
167, Princeton, Woodrow Wilson School - Development Studies.
- Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October.
- Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 110(465), pages 601-31, July.
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012.
"Do interest rates matter? Credit demand in the Dhaka slums,"
Journal of Development Economics,
Elsevier, vol. 97(2), pages 437-449.
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2005. "Do interest rates matter? credit demand in the Dhaka Slums," MPRA Paper 33146, University Library of Munich, Germany.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
- Patrick Honohan, 2004. "Financial Sector Policy and the Poor : Selected Findings and Issues," World Bank Publications, The World Bank, number 14874.
- Dean Karlan & Jonathan Zinman, 2009.
"Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment,"
Econometric Society, vol. 77(6), pages 1993-2008, November.
- Dean S. Karlan & Jonathan Zinman, 2005. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," Working Papers 911, Economic Growth Center, Yale University.
- Dean Karlan & Jonathan Zinman, 2004. "Observing unobservables: Identifying information asymmetries with a consumer credit field experiment," Natural Field Experiments 00283, The Field Experiments Website.
- Dean Karlan & Jonathan Zinman, 2005. "Observing unobservables: identifying information asymmetries with a consumer-credit field experiment," Proceedings 961, Federal Reserve Bank of Chicago.
- Karlan, Dean S. & Zinman, Jonathan, 2007. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," CEPR Discussion Papers 6182, C.E.P.R. Discussion Papers.
- repec:fip:fedhpr:y:2005:i:apr:x:12 is not listed on IDEAS
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.