Contrasting Methodologies Used to Expand the Outreach Contrasting Methodologies Used to Expand the Outreach of Financial Services to the Rural Poor: of Financial Services to the Rural Poor:

Lessons from Mexico’s PATMIR ExperienceLessons from Mexico’s PATMIR ExperienceJulia Paxton, Ph.D.Julia Paxton, Ph.D.

International Conference on Rural Finance Research: Moving Results into Policy and Practice FAO: Rome, Italy

March 2007

PATMIR: expanding financial PATMIR: expanding financial services in rural areas of Mexicoservices in rural areas of Mexico

3 Consulting firms3 Consulting firms

WOCCU, DID, DGRVWOCCU, DID, DGRV3 Methodologies3 Methodologies

Strengthen, Expand, NewStrengthen, Expand, New

NUMBER OF INSTITUTIONS ACCORDING TO NUMBER OF INSTITUTIONS ACCORDING TO METHODOLOGY BY CONSULTANTMETHODOLOGY BY CONSULTANT

0

2

4

6

8

10

12

DID WOCCU DGRV

new

strengthen

expand

OUTREACHOUTREACH

KEY POINTSKEY POINTS

1. BETTER CLIENT INFORMATION IS 1. BETTER CLIENT INFORMATION IS NEEDED IF OUTREACH IS A GOALNEEDED IF OUTREACH IS A GOAL

2. BETTER OUTREACH MEASURES 2. BETTER OUTREACH MEASURES ARE NEEDEDARE NEEDED

AVERAGE LOAN AND DEPOSIT AVERAGE LOAN AND DEPOSIT SIZE BY METHODOLOGYSIZE BY METHODOLOGY

(US$1 = 10.6 Mexican pesos) Dec. 2006 (US$1 = 10.6 Mexican pesos) Dec. 2006

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

new strengthen expand

Mex

ican

pes

os

Average Deposit

Average Loan

DEPTH OF OUTREACH INDEXDEPTH OF OUTREACH INDEXDOIDOI

0

1

1% male

% urban

Adult literacy (%)

IncomeNEW

Country average0

1

1% male

% urban

Adult literacy (%)

IncomeSTRENGTHEN

Country average

0

1

1% male

% urban

Adult literacy (%)

IncomeEXPAND

Country average

Poverty Outreach Index (PO)Poverty Outreach Index (PO)

)1)((),;(z

xqLogzxPO

where n = population sizex = income of the ith household below the poverty lineq = number of households below the poverty linez = poverty line = researcher designated weight

0

AVERAGE PO INDEX BY AVERAGE PO INDEX BY CONSULTING FIRM AND BY CONSULTING FIRM AND BY

METHODOLOGYMETHODOLOGYPO INDEX

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

DID WOCCU DGRV new strengthen expand

GEOGRAPHIC ANALYSISGEOGRAPHIC ANALYSIS

DID NEW:SERFIR

GUERRERO: DGRV NEW and STRENGTHENING

TLAPANALTOMIN

SULJAA

ZIHUATLAN

PATMIR SustainabilityPATMIR Sustainability

Operational Self Sufficiency By Methodology

0

0.2

0.4

0.6

0.8

1

1.2

1.4

new strengthen expand

Operational self sufficiency

Portfolio Quality By Methodology

0.00%2.00%

4.00%6.00%

8.00%10.00%

12.00%

Prov. Loan Losses /Outstanding loans

Portfolio at Risk

SO WHICH METHODOLOGY SO WHICH METHODOLOGY WINS?WINS?

I wish it were that simple!I wish it were that simple!

General trends:General trends:

New institutions have great outreach New institutions have great outreach and lower arrears but are costlyand lower arrears but are costly

Existing institutions have better Existing institutions have better sustainability measures but can be slow sustainability measures but can be slow to change and have portfolio quality to change and have portfolio quality problemsproblems

BUT….BUT….

New institutions are becoming more New institutions are becoming more sustainablesustainable

Existing institutions can and do reach the Existing institutions can and do reach the poor in addition to their other clients and poor in addition to their other clients and when motivated, can modify their when motivated, can modify their methodology to expand outreachmethodology to expand outreach

OUTREACH AND OUTREACH AND SUSTAINABILITYSUSTAINABILITY

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

SDI DOI PO Index

OUTREACH AND OUTREACH AND SUSTAINABILITYSUSTAINABILITY

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

SDI DOI PO Index

New StrengthenExpand

TRADE-OFFSTRADE-OFFS

Trade-offs between outreach and Trade-offs between outreach and subsidy dependencesubsidy dependence

SDI Correlations

-0.6 -0.4 -0.2 0 0.2 0.4 0.6

loan size

#loans/staff

vol loans/staff

doi

marginal

po

GEOGRAPHIC COVERAGE GEOGRAPHIC COVERAGE CORRELATIONSCORRELATIONS

Average geographic coverage per branch correlations

-0.8 -0.6 -0.4 -0.2 0 0.2 0.4

loan size

travel time

#loans/staff

vol loans/staff

doi

marginal

po

sdi

HOW FAR OUT CAN YOU GO?HOW FAR OUT CAN YOU GO?

Rules of thumb from the fieldRules of thumb from the field

25 km radius depending on roads25 km radius depending on roads

No more than one hour of loan officer No more than one hour of loan officer traveltravel

Average of 10 – 20 minute travel time for Average of 10 – 20 minute travel time for clientclient

Going into areas with an integrated rural Going into areas with an integrated rural development strategy is helpfuldevelopment strategy is helpful

THANK YOU!!!THANK YOU!!!