Regulation allows microfinance institutions to take deposits and expand their banking functions, but complying with regulation can be costly. We examine implications for institutions' profitability and their outreach to small-scale borrowers and women, using a newly-constructed dataset on 245 leading institutions. Controlling for the non-random assignment of supervision via treatment effects and instrumental variables regressions, we find evidence consistent with the hypothesis that profit-oriented microfinance institutions respond to supervision by maintaining profit rates but curtailing outreach to women and customers that are costly to reach. Institutions with a weaker commercial focus instead tend to reduce profitability but maintain outreach.
- Cross-country regression
ASJC Scopus subject areas
- Geography, Planning and Development
- Sociology and Political Science
- Economics and Econometrics