Constrasting methodologies for expanding microfinance outreach to the rural poor: trade-offs and lessons from Mexico’s Patmir Project

Julia Paxton
Savings and Development Vol. 31(2007), No. 3, pp. 283-306

PATMIR (Project of Technical Assistance for Rural Microfinance) began in Mexico as an initiative aimed at expanding outreach of financial services to the rural poor in a sustainable manner. Using international technical assistance, three primary methodologies were employed in 34 cooperatives: i.) creating new cooperatives, ii.) strengthening existing cooperatives, and iii.) encouraging existing institutions to expand into underserved areas. Various outreach indicators, including two composite measures, were calculated to compare across institutions. In general, new and expanding cooperatives attained better depth of outreach than the strengthened institutions. While it is true that some of the smaller subsidized institutions have nearly all of their clients meeting the prototypical PATMIR outreach standards, it is important to recognize that larger institutions can and do serve the same segment of marginalized clients in addition to their middle and upper income clients. This strategy has advantages in that it allows for portfolio diversification, liquidity management, economies of scale, and financial viability. There does appear to be a trade-off between many measures of outreach and sustainability. A higher dependence on subsidies is correlated with better depth of outreach, smaller loan and deposit sizes, and lower staff productivity. Not surprisingly, institutions trying to serve a large, rural area per branch have impressive depth of outreach and lower average loan sizes. However, these institutions have a greater reliance on subsidies, lower staff productivity, and higher transaction costs for clients in the form of travel time. There was no clear winner among methodologies as certain cooperatives from each category achieved both outreach and sustainability. New institutions have strong outreach indicators and are making strides to becoming sustainable. However, there is a large start-up cost in time, training, and resources. Existing institutions start with potentially significant scale, but face ingrained corporate culture that can impede necessary changes. 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.

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Issue: 2007 XXXI 3
Contributors: Paxton, Julia