Economies of diversification in microfinance: Evidence from quantile estimation on panel data

Prior studies of the diversfication-driven cost savings from the joint provision of credit and deposits in micrfinance usually ignore the multi-way heterogeneity across MFIs which vary substantially in size, business model, target clientele and operate in diverse environments. Us- ing a quantile panel data model with correlated ffects capable of accommodating multiple het- erogeneity, we show that the typical measurement of economies of diversfication at the mean provides an incomplete and distorted picture of their magnitude and prevalence in the industry. While wefind statistically signficant estimates, they are modest for most small-size MFIs but are quite substantial for large-scale institutions.