“Credit-plus” services in Mexico: Are they worth it? Olga Biosca The University of Sheffield, UK Luxembourg, December 2010 UMM Scholar 2010

Introduction: Non-financial services (NFS) Review of NFS and the Mexican context Data, survey design and methodology Results Conclusion

Introduction: Non-financial Services (NFS) NFS are heterogeneous:  Delivery types  Payment  Choice  Timing  Location  Etc.

Introduction: Non-financial Services (NFS) NFS have experienced major changes in the last 2 decades: high quality services are currently mainly delivered in partnership with specialized organizations They are now demand-led services used by MFIs to enhance impact on poverty alleviation, but also to mitigate credit risk and as a comparative advantage in the market Research objectives 1.Participation determinants in NFS 2.Impact on income & poverty alleviation aims of Business Development Services & Preventive Health Services

Introduction: Facts Mexico: Upper-middle income country but... extreme inequalities Chiapas:  Poorest State - GNI per capita ≈4500 USD  Second highest deprivation level: Illiteracy for over 15: 21% (8.3%) No piped water: 26% (10%) Earth flooring: 33% (13.5%)  Lab for anti-poverty policies: Oportunidades (PROGRESA): conditional cash transfer program for nutrition, health and education. Microfinance:  High competition

Literature Review There is not an extensive academic literature on microfinance NFS due to data restrictions There are no previous studies on the determinants of the demand for human capital among microfinance borrowers There are few analyses of NFS impact:  McKernan (2002), positive non-credit benefits on self employment profits  Smith (2002), positive maternal and child health outcomes of “health banks”  Karlan and Valdivia (2010), BDS services have an impact on business practices and MFI performance

Partnership Programs NFS programs operating in Chiapas in peri-urban and rural settings: AlSol & Alcance (Freedom from Hunger) Business Development Services – Adding 30 to 60 minute entrepreneurship/ business training sessions to normal bank meetings. 3,000 participants. Voluntary and free attendance. (USD 4.4 M gross loan portfolio; 20,000 borrowers; SOFOM) CONSERVA, GEMA & Local Private Clinics Preventive Health Services – Adding one day “health consciousness-raising” activities. Training session (STDs & HPV), cervical screening and individual counselling. 6,000 participants. Voluntary attendance has a cost of ≈10 USD. (USD 6.7 M gross loan portfolio; 30,000 borrowers; SOFOM)

Data and Sampling Primary data: 434 standardized structured questionnaires and 4 focus group discussions with female clients of MFIs (July-Oct. 2009) Secondary supply side data (MFIs’ databases) Sampling as a solution for endogeneity in IMPACT ASSESSMENT:  Non random program supply  Self-selection Eligibility criteria differ between MFIs:  geographical location (BDS)  number of credit cycles (PHS) Stratified random sampling based on access to the training

Sample AlSol: BDS Conserva: PHS * Overall response rate was 76% 434 clients No access: 134 Not interested in participation : 39 Self-selected for participation: 95 Access: 300 Non participants: 105 Participants: 195

Estimation Framework Determinants of the demand of human capital estimated using a Probit model and impact of NFS using a diff-in- diff approach. FE to control for intra-municipality variation Extended equation to compare between NFS X ij – Personal, household and business characteristics V j - Village characteristics E ij - Access to NFS I ij - Interest in NFS T ij - Treatment ( E*I )

Results: Participation Who participates? Participation depends more on characteristics of the borrowers than on characteristics of the training services (location, duration..) What are the most important characteristics that induce participation? They are different for each NFS program, but participating in other poverty alleviation programs like Oportunidades is determinant. Household heads are more likely to participate in BDS. Older and more educated women, with a more recent business, are more likely to participate in PHS.

Results: Impact on Poverty Does “credit-plus” alleviate poverty? Yes, it has a positive impact on monthly income per capita, especially driven by BDS. Does “credit-plus” reduce the possibility of living below the poverty line? It reduces the probability to be under the three Mexican poverty lines - food, capabilities and assets - but the effects are stronger at the capabilities and assets poverty lines, i.e. for those borrowers that already have their food needs satisfied. Again BDS drives the effect but there are no significant differences between the effects of both types of program.

Conclusion Is “credit-plus” worth it? Credit-plus services do increase the impact of microfinance on poverty alleviation in one of the poorest Mexican States. Does the type of NFS program matter? The differences between the impact of both programs are not significant, but the effects of the Preventive Health program seem to take longer to materialize than the Business Development one. Who participates? The type of NFS program has to be adapted to the context and the characteristics of the MFI borrowers.

Conclusion Are partnerships the solution? Specialized partners are needed for successful NFS programs that alleviate poverty and attract customers. What about innovating? In specific contexts, exploring partnerships between public development programs and MFIs is also a way forward (e.g. CONSERVA and Oportunidades) to cost effectively enhance the impact of microfinance on poverty. Public-private / private-private synergies Partnerships Poverty alleviation

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