Paper
Credit Union Policies and Performance in Latin America
Measuring linkages between credit union policies and performance with a blended approach
22 pages
This paper explores empirical linkages between credit unions' (CUs) policies and their financial performance. It details an analysis as measured by loan delinquency and profitability, using a unique micro dataset of credit unions in three Latin American countries.
The analysis estimates a translog profit function. In general, the analysis:
- Examines two types of variables:
- One group that affects the incentives of borrowers to repay loans;
- Another group that affects the CU's ability to screen loan applications accurately.
- It finds that:
- Performance depends in important ways on two types of CU policy variables;
- Certain variables from each group affect both delinquency and profitability, in accordance with theory;
- The operative level of an average CU reflects administrative inefficiencies.
The paper states that the issues addressed by the analysis have been suggested by economic theory before. However:
- The hypotheses have not been widely accepted by industry practitioners in the sample countries;
- Direct observation of their importance has previously been hampered by the unavailability of sufficiently complete or reliable data.
The concerns tackled in this paper have important policy implications for:
- Successful operation of CUs in developing countries;
- Overall economic development;
- Unprecedented test of administrative inefficiencies of CUs.
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