Is it wise, on average, for a microfinance bank to diversify geographically?

Check out our new paper accepted for publication in Journal of Banking and Finance

Since start-up in 1997 I have been involved in the microfinance bank BANCO D-MIRO in Ecuador. Many stakeholders have assessed our performance. Especially international lenders and rating agencies. What has always annoyed me is that they have repeatedly told us that we should diversify our geographical risk by entering more regions. I have fought against this recommendation because I think it requires more coordination resources to operate with larger geographical outspread. Moreover, I think geographical concentration gives us improved market knowledge. This background has motivated me to carry out this new research project together with my colleagues Stephen Zamore and Leif Atle Beisland. In the paper we are the first to study the link between geographic diversification and credit risk in microfinance. Who was right? I or the rating agencies? Check out the paper!

(P.S. since we use a large global dataset it could still be that the rating agencies are right in the case of Banco D-MIRO 😊)  

Best wishes,

Roy Mersland

Professor/Director PhD program

Director Center for Research on Social Enterprises and Microfinance (CERSEM)

School of Business and Law

University of Agder

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