Whitman School of Management at Syracuse University
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Abstract Details

Rural Microfinance and Client Retention: Evidence from Malawi
Vol. Volume 18 Number 1 March/2013

Marc J. Epstein and Kristi Yuthas
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%, 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.

Keywords: Microfinance, Client retention, Client exit, rural, Social performance indicators, Financial sustainability, unbankedulture; informal sector; underground economy; shadow economy; Brazil