Economies of Diversification in Microfinance: Evidence from Quantile Estimation on Panel Data
11 Pages Posted: 7 Sep 2019
Date Written: June 25, 2019
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
JEL Classification: G15, G21, O16, L33
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