Economies of Diversification in Microfinance: Evidence from Quantile Estimation on Panel Data

Document Type

Article

Publication Date

7-29-2020

Publication Title

Finance Research Letters

Volume

34

First page number:

1

Last page number:

7

Abstract

Prior studies of the diversification-driven cost savings from the joint provision of credit and deposits in microfinance usually ignore the multi-way heterogeneity across MFIs which vary substantially in size, business model, target clientele and operate in diverse environments. Using a quantile panel data model with correlated effects capable of accommodating multiple heterogeneity, we show that the typical measurement of economies of diversification at the mean provides an incomplete and distorted picture of their magnitude and prevalence in the industry. While we find statistically significant estimates, they are modest for most small-size MFIs but are quite substantial for large-scale institutions.

Keywords

Cost; Diversification; Microfinance institutions; Quantile regression

Disciplines

Econometrics

Language

English

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