An Analysis of Organizational, Market and Socio-cultural Factors Affecting the Supply of Insurance and Other Financial Services by Microfinance Institutions in Developing Economies

This paper investigates the status of microfinance markets, and the scope of services available from MFIs around the world. It also examines organizational, market and socio-cultural factors affecting the supply of microinsurance and other financial services using cross-sectional data for the period from 1998 to 2007.

Microinsurance is more likely to be available from MFIs operating in South Asia. Descriptive and empirical examination indicates that:

• Rise in financial expense ratio may induce MFIs to broaden their service scope;
• MFIs are more likely to add insurance and savings services as number of clients increases;;
• Loan repayments in arrears, years of operation, number of borrowers, woman borrower ratio, life insurance penetration ratio and family size positively affect MFI willingness to expand microinsurance operations;
• MFIs are likely to stay away from the insurance market when their loan asset ratio, bad loan write-off ratio or average loan size in comparison to gross national income per capita is on the rise;
• MFIs focus on lending services in countries with Muslim population.

The study finds no evidence that presence of insurance affects availability of savings services, and vice versa, in the microfinance market.