How Does Geographic Distance Affect Credit Market Access in Niger?

This paper analyzes the relationship between distances separating households from MFI offices in Niger, and the low levels of microfinance development in the country. The paper also discusses the tension between access and sustainability in the context of financial services for the poor. Long distances between clients and MFI offices limit access to basic financial services and are a major barrier to development. Niger is one of the poorest countries in the world with a poorly developed microfinance sector. The paper demonstrates that:

• Distance imposes increased costs on MFIs, who transfer these costs to borrowers through higher interest rates and more intense loan screening;
• Adverse selection and moral hazard in Niger's credit market increase transaction costs;
• Distance is associated with the rarity of MFIs, putting providers of microfinance in a monopoly situation;
• There is an intrinsic contradiction between outreach and sustainability that is worsened by low population density in Niger.

Screening policies implemented by MFIs to maintain portfolio quality will potentially hurt the poor. Hence, the trade-off between outreach and sustainability deserves more attention in research and policy discussions.