Responsible Investment

What type of services should microfinance offer?

August 31, 2011
Image “Rural women driving their own change” by McKay Savage (CC BY)

Led by Professor Robert Lensink from the University of Groningen, the paper’s authors (Lensink, Roy Mersland of the University of Agder, Norway, and Vu Thi Hong Nhung of the University of Groningen) developed new knowledge in the field, based on the growing sophistication and differing models in today’s MFIs.They compared microfinance-plus providers (which offer nonfinancial services) to specialized MFIs (which focus only on financial services) according to their financial results and level of outreach to the poor. While the traditional approach, encouraged by many policy-makers, is that ‘the only way for MFIs to become self-sufficient, attain sustainability, and reach optimal scale is to concentrate on financial services’ – to become specialized, that is – it is clear that Business Development Services (BDS) can make substantial positive contributions to the profits of microcredit users, and to MFIs in general.

Offering educational services in such areas as health, nutrition, and entrepreneurial training provide better outreach to the poorest clients and appears to improve the income of an MFIs clients, with a relatively small impact on the financial performance of the MFI. However the study does represent ‘a first attempt to understand the effects of different types of microfinance services on financial performance and outreach’, according to the paper’s authors, who admit that ‘additional rigorous studies about whether different plus services actually enhance customer impacts are also needed’.

Note

Robert Lensink was keynote speaker at the 2011 ‘European Research Conference on Microfinance’.

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Paper ‘Should microfinance institutions specialize in financial services?’

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