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RURAL MICROFINANCE AND CLIENT RETENTION: EVIDENCE FROM MALAWI

MARC J. EPSTEIN

Jesse H. Jones Graduate School of Business, Rice University, 6100 Main Street, MS-531, Houston, TX 77005, USA

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KRISTI YUTHAS

Department of Information Technology, Portland State University, USA

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https://doi.org/10.1142/S1084946713500064Cited by:6 (Source: Crossref)

Abstract

Microfinance institutions (MFIs) have largely focused on urban markets, leaving the rural poor underserved. The high costs of serving rural markets has often been identified as the key impediment to serving these markets, resulting in saturation and heavy competition in urban markets while poor rural clients remain unserved. In this paper, we provide evidence from a sample of over 10,000 microfinance loans in Malawi, that the cost argument has an important flaw. Results show that client retention, a critical aspect of financial sustainability, is significantly higher in rural markets. In addition to being a key financial indicator in an industry where annual client exit rates can exceed 50 percent, client retention is also a key measure of social impact. By operating in rural markets, MFIs may be able to increase both social impact and financial performance.

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