Learning Curve Spillovers and Transactions Cost in the Microfinance Industry of the Philippines

This study seeks to determine how MFIs in the Philippines are able to attain operational self-sufficiency, the established indicator for financial viability among microfinance institutions, in spite of high transactions cost. The phenomenon may be verified by the following research question: does the behavior of operational and transactions costs among group and individual microfinance lenders manifest experience or learning curve spillovers and a U-shaped supply curve? The study has two objectives: 1) using appropriate measures of financial and social performance, the study shall empirically verify the phenomenon of experience or learning curve spillovers among MFIs; and 2) estimate the supply curve for loans to the unbanked poor and verify that it is U-shaped.

The results show that both NGOs and rural banks are attaining both objectives of operational self-sufficiency and moderate to good social performance, through the spillover effects of learning, that is, fast learning for rural banks and moderate learning for NGOs. Operational and transactions costs are high but decreasing for both rural banks and NGOs. Older, more mature NGOs and rural banks are able to set transactions cost at the prescribed level of 11%-25%. Such costs ensure that the MFIs operate in order to both financial performance and outreach.