AGENCY COST OF CREDIT ON MICROFINANCE INSTITUTIONS OF COOPERATIVE AND RURAL BANK TYPE

Purwanto Purwanto

doi:10.29040/ijebar.v4i03.1252

Abstract

Historically, most microfinance providers are in the form of cooperatives, while some policies studies recommend shareholders ownership because it can reduce the risk of capital costs and charges opportunism manager. This study aims to analyze the factors in the cost of ownership that distinguishes MFI with the type of cooperative ownership and village banks. The study was conducted by using secondary data from the MIX (Microfinance Information Exchange) market year 2007-2013. The factors Influencing the determinants of MFI ownership costs were Analyzed using multiple logistic regression analysis technique. The study found that the MFI of cooperative has advantages in operational efficiency and credit risk while village banks have advantages in the cost of customer service, cost of debt, cost of capital, social performance and financial performance.

Highlights

Microfinance Institutions (MFIs) are financial institutions serving the micro segment, which are generally poor people who have limited access to finance from formal financial institutions
Most microfinance providers have been in the form of cooperatives and donor agencies, while several policy studies have recommended forms of share ownership because they reduce the risk of capital costs and managerial opportunistic costs (Mersland, 2009)
Ownership costs between MFIs in the form of cooperatives and Village Banks are compared from the following aspects: customer costs, operational costs, debt costs, and capital costs and the impact of agency problems

Summary

Introduction

Microfinance Institutions (MFIs) are financial institutions serving the micro segment, which are generally poor people who have limited access to finance from formal financial institutions. The micro segment, which is generally the middle to lower economic community, has a high risk of credit services. Credit services in the micro segment have high information asymmetry due to generally unavailability of adequate financial reports, which increases risk at the credit screening, monitoring and control stages as well as the credit payment enforcement stage. Most microfinance providers have been in the form of cooperatives and donor agencies, while several policy studies have recommended forms of share ownership because they reduce the risk of capital costs and managerial opportunistic costs (Mersland, 2009). Cooperatives are still needed to reduce the risk of information asymmetry in markets with imperfect information (Mersland, 2009)

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