| Abstract: |
What is the optimal size and composition of rural financial cooperatives
(RFCs)? With this broad question in mind, we characterize alternative
formations of RFCs and the implications of each in improving the access of
rural households to financial services, including savings, credit, and
insurance services. We find that some features of RFCs have varying
implications for delivering various financial services. The size of RFCs is
found to have a nonlinear relationship with the various financial services
RFCs provide. We also show that compositional heterogeneity among members,
including diversity in wealth, is associated with higher access to credit
services, while this has limited effects on the savings behavior of members.
Similarly, social cohesion among members is strongly associated with higher
access to financial services. These empirical descriptions suggest that the
optimal size and composition of RFCs may vary across the different domains of
financial services that they are designed to facilitate. This evidence
provides suggestive insights on how to ensure financial inclusion among
smallholders, a priority among agricultural sector policy makers in developing
countries, including Ethiopia. The results also provide some insights for the
design of rural microfinance operations as they seek to satisfy members’
demand for various financial services. |