Financial Inclusion of the Poor in Peru: Explanatory factors and determinants

Following current debate about possible trade-off between financial sustainability and social performance of microfinance institutions (MFIs), this paper explores the extent to which these institutions are capable of expanding ‘financial inclusion’ i.e. provision of financial access to those with no prior access to the financial system. By looking at one of the most dynamic microfinance markets in the world, Peru, the study analyses the factors that help explain the degree of financial inclusion by MFIs of previously-excluded clients, usually poor people. The research shows that statistically significant determinants of financial inclusion are related to MFIs’ asset value and maturity. Importantly, it is also found that alliances established by MFIs with nationwide domestic financial institutions contribute to MFIs’ ability to reach a greater number of people, while there is no statistical significance about the specific economic activity in which the micro-credit is used. Consequently, research findings support our policy recommendations of introducing mechanisms to help strengthen MFIs’ assets and their ability to engage in working relations with other actors in the microfinance system.