Abstract
AbstractMost empirical studies in microfinance have disproportionately focused on its downstream effects—effects on the borrower—leaving the important question of how microfinance institutions are affected in the process, largely unanswered—upstream effects. This paper addresses this question by using panel data estimations to empirically investigate the causal effect of microfinance growth on microfinance institution loan portfolio quality. Surprisingly, we find evidence that portfolio quality improves with growth in outreach, which is contrary to the dominant view that higher growth leads to increased default risk. This result is robust across estimation methods and even after controlling for microfinance institutional characteristics and macroeconomic indicators. Copyright © 2015 John Wiley & Sons, Ltd.
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