Corporate Governance and Access to Finance - ESBG

For example, in Latin America, WSBI members are long-established providersof microfinance services (both savings and credits); in Africa they havetraditionally provided microsavings; in Asia they act as formalmicrofinance providers in different forms (as development banks, savingsinstitutions, postal banks and retail banks); and in Europe microcredit hasreceived recognition in recent years (see WSBI, Perspectives 59).Focusing on households as consumers of financial products, Honohan(2008) finds that a regulatory design for microfinance institutions toensure consumer protection does not impose costs in a marketcharacterized by low margins. His research shows that facilitating accessto financial services such as transactions accounts, or savings accounts,loans from a formal intermediary or insurance policy can reduce poverty.A regulatory environment protecting stakeholders does not seem to be arestriction for the entry of new banking institutions. The positiveexpected returns related to the improvement in Access to Finance seemto prevail over the costs of the regulatory restrictions.The literature does not favor any specific ownership type in microfinanceorganizations in terms of reducing costs. Mersland (2009) compares thecosts of a variety of microfinance institutions including member-basedcooperatives, non-profit organizations or shareholder firms. These costsrefer to (i) the ones derived from limited market competition, (ii) “lock-in”costs due to a single credit provider, (iii) costs related to asymmetricinformation of borrowers and credit institutions, (iv) cost of access toequity capital and (v) cost of monitoring managers. The findings showthat diversity pays: a mixture of different ownership types in the financialsystem, similar to that found in mature banking markets, best servesmicrofinance customers. This ownership typology is similar, to someextent, to the diversity of WSBI members, including many different typesof stakeholders. The conclusion is that no ownership structure type, norstakeholder composition, dominates the others, based on the expectedreduction of the mentioned costs as a yardstick. These conjectures wereempirically supported by Mersland & Strøm (2008), accounting for sixspecific performance aspects of financial access: cost, depth, breadth,length, scope and worth.This kind of evidence shows that it is possible to satisfy the needs ofdifferent types of stakeholders and providing profitable financial serviceswith diverse ownership structures of banking institutions.107