Linkage Banking and Outreach: A Case of Microfinance Cooperatives in Tanzania

Abstract

While microfinance cooperatives (MFCs) involved in linkage banking has increased in order to overcome their financing gap and thus expand their outreach, studies associating microfinance institutions (MFIs) outreach with sustainability, cost efficiency and profitability signal the possibility of MFIs involved in linkage banking to reduce their outreach. Previous studies relating outreach to linkage banking are biased toward banking institutions. Based on semi-regression model applying primary data collected from 102 MFCs, this paper assesses the relationship between outreach and linkage banking. The results reveal missing and mixed effects of financial linkages on MFCs outreach. Explanations of these resultsinclude poor organisation of linkage banking, unfavourable terms or loan requirements and the graduation of MFCs’ large member-borrowers to partner banking institutions.