Can Combining Credit with Insurance or Savings Enhance the Sustainability of Microfinance Institutions?
This paper examines whether combining microcredit with insurance and/or savings enhances the economic performance of MFIs.
Microcredit organizations are gradually transforming to multi-service organizations offering additional financial services. The paper examines whether this transformation increases their sustainability by increasing their efficiency, productivity, sustainability portfolio quality. It uses cross-sectional data from 250 MFIs from Latin America and the Caribbean, comparing MFIs offering credit only with those combining credit with savings and/or insurance. The study uses multiple regression analysis. Findings indicate that:
- Savings and insurance have positive effects on MFI efficiency and productivity;
- Combining microcredit with savings and insurance does not have significant positive effects on MFI sustainability and portfolio quality;
- Combined microfinance can enhance organizational efficiency and productivity because it helps to achieve economies of scope;
- This is especially true for large and mature MFIs which are ready in terms of human, financial and organizational resources to deal with delivering multiple financial services.
The findings support research that suggests that commercial banks may be better qualified to handle a large array of different financial services and their respective risks, while savings driven institutions are able to manage simple savings and loan products.