Does the Geographic Expansion of Microfinance Branches Affect Profitability? Panel Data Evidence from Sub‐Saharan Africa

Sydney Chikalipah

Journal of International Development, 2019, vol. 31, issue 5, 393-410

Abstract: Notwithstanding the recent banking innovations, like mobile money services, microfinance institutions still rely on brick‐and‐mortar branches to provide financial services to the poor in the sub‐Saharan Africa (SSA) region. Moreover, the number of microfinance branches has continued to increase remarkably since the early 2000s. In light of that, we study the influence of geographic expansion of the branches network on the profitability of 343 microfinance institutions operating in 36 countries of SSA over the period 2003 to 2012. By exploiting the ordinary least squares and generalised method of moments approaches, we found that the geographic expansion of microfinance branches is positively associated with an increase in profitability. Conspicuously, the policy implication regarding this study's findings is that extending financial services to the poor, via branch expansion, is optimal for microfinance institutions operating in SSA. Nevertheless, the branching strategy must be accompanied by operational efficiency to safeguard the advantages of economies of scale gained through the scale‐up of the branch network. © 2019 John Wiley & Sons, Ltd.

Date: 2019
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https://doi.org/10.1002/jid.3410

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jintdv:v:31:y:2019:i:5:p:393-410

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