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What type of services should microfinance offer?

types of microfinance services

Aug 31, 2011

Subjects: Microlending

MFIs (microfinance institutions) now offer a variety of services to their clients, a model that has been described as ‘microfinance plus’. These additional services include pensions, savings and insurance, BDS (business development services) and a range of social services focused on the poorest clients. In the paper ‘Should Microfinance institutions specialize in financial services?’ scholars from the universities of Groningen and Agder, Norway, have examined research from 290 rated MFIs in 61 nations to see how – and whether – extra services help the clients of MFIs, and/or help MFIs to remain financially sustainable.

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’.

Category: Payday loans

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