Governance and scope economies in microfinance institutions

This paper explores the relation between board size and composition and estimated cost SCOPE? economies from offering both voluntary savings and loans by Microfinance Institutions. In the first stage, we estimate scope economies from a cross-country sample using a semiparametric smooth coefficient method. It uniquely permits us to include observations with zero savings output and thus include all MFIs in the sample since the majority are lending-only. More importantly, this methodology allows us to incorporate the impact of direct and indirect (via input price interactions) factors related to the external environment in which MFIs operate, and which are not controlled by management. In the second stage, we study differences in estimated scope economies that are can be attributed to management and thus differ by various governance structures.We find some support for the hypotheses that internally generated information, due to employee representation on MFI boards, may increase the likelihood and magnitude of scope economies. However, the CEO-Chairman duality is associated with equal and even slightly larger probability of negative scope economies, a result consistent with previous work. A complementary finding is that representation by other types of stakeholders such as clients, international directors, and creditors, as well as gender and international diversity, are not