Do microfinance institutions benefit from integrating financial and nonfinancial services?

27% of MFIs adopt a ‘plus’ model and provide nonfinancial services alongside financial services. Is the pendulum shifting from a ‘minimalistic’ microfinance model back to an ‘integrated’ model?

In the 1970ties and 80s, the provision of financial services to microentrepreneurs was often done alongside nonfinancial services (social and business development services). While social services focused on improving clients’ welfare, business development services were offered to teach the clients basic financial and business management principles. This was believed to enhance clients’ business success and in that way, improve the MFI’s loan quality. This belief was not supported by earlier studies and most MFIs have phased out the ’plus’ practice and now specialize in providing only financial services. In contrast, recent studies have hinted that credit alone is not enough to significantly enhance client’s welfare. Thus, in our dataset, 27% of the MFIs adopt a ‘plus’ model. The purpose of our most recent article published in Applied Economics is to provide policymakers and practitioners with evidence on whether the provision of ‘plus’ services influences the financial and social performance of MFIs. We find that the provision of nonfinancial services does not harm nor improve MFIs’ financial sustainability and efficiency. The results, however, suggest that the provision of social services is associated with improved loan quality and greater depth of outreach. You can download and read the full article here

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