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Microfinance Product Diversification: A Domino Effect of Opportunities or Vulnerabilities? A Case Study in Barbados

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This paper aims at gaining deeper understanding of the possible effects of combined microfinance (CMF) product delivery. By means of a casestudy on the City of Bridgetown (COB), one of the leading credit unions in Barbados, it explores the possible opportunities and challenges dealing with CMF. This case-study suggests that CMF, especially the combination credit-savings, may enhance the cost-efficiency of loan delivery and that it can generate economies of scope for marketing purposes. Savings is at the heart of the growth strategy of the credit union and has contributed to its current large breadth of outreach. The case-study suggests that CMF can also lead to increased costs and new financial risks for MFIs. It brings forward the complex interaction dynamics between different financial products which can lead to a domino effect of cumulative access barriers. Especially unbankable clients, with limited financial capacity, a challenging risk profile and exposed to information asymmetry, are vulnerable to these elements if no appropriate measures are being taken.

Abstract

This paper aims at gaining deeper understanding of the possible effects of combined microfinance (CMF) product delivery. By means of a casestudy on the City of Bridgetown (COB), one of the leading credit unions in Barbados, it explores the possible opportunities and challenges dealing with CMF. This case-study suggests that CMF, especially the combination credit-savings, may enhance the cost-efficiency of loan delivery and that it can generate economies of scope for marketing purposes. Savings is at the heart of the growth strategy of the credit union and has contributed to its current large breadth of outreach. The case-study suggests that CMF can also lead to increased costs and new financial risks for MFIs. It brings forward the complex interaction dynamics between different financial products which can lead to a domino effect of cumulative access barriers. Especially unbankable clients, with limited financial capacity, a challenging risk profile and exposed to information asymmetry, are vulnerable to these elements if no appropriate measures are being taken.

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