Contrasting Methodologies Used to Expand the Outreach of Financial Services to the Rural Poor: Lessons from Mexico's PATMIR Experience

This study examines various measures of outreach and their relationship to the financial sustainability of the rural cooperatives that received technical assistance under Mexicos “Project of Technical Assistance for Rural Microfinance (PATMIR)” project. The study:

• Focuses on specific trade-offs between outreach and sustainability that appeared among these institutions.
• Contrasts the following three methodologies of expanding outreach to the rural poor that PATMIR employed:
  • Creating new cooperatives;
  • Strengthening existing cooperatives;
  • Encouraging existing institutions to expand into underserved areas.

The study uses data from 34 Mexican cooperatives and their clients to analyze the outreach and sustainability of these three methodologies. It finds that:

• In general, new and expanding cooperatives attain a better depth of outreach than strengthened institutions;
• There is a trade-off between many measures of outreach and sustainability;
• Institutions trying to serve a large, rural area have impressive depth of outreach and lower average loan sizes, but a greater reliance on subsidies, lower staff productivity, and higher transaction costs;
• There is no clear winner among methodologies;
• While new institutions have strong outreach indicators and are becoming sustainable, they have large start-up costs;
• Strengthened institutions have significant scale, but face corporate culture that can impede changes.

The study concludes that to the extent that the management is committed to attaining a deeper outreach and the new portfolio is cost effective, more existing institutions will be inclined to serve marginalized groups.