DOI: 10.25549/usctheses-c3-218024
title: Commercial microfinance in Korea: outreach, customer choice and satisfaction, and impact

description: Since the emergence of the commercialization trend in microfinance in the early 1990s, various studies on commercialization have been conducted. However, most of them have looked at this issue from a supplier-oriented perspective. Utilizing data from Korea, this paper discusses empirical research on the following four customer-oriented issues: determinants of depth of outreach; determinants of customer choice; determinants of customer satisfaction; and impacts of commercial microfinance. ❧ The research on determinants of depth of outreach finds that variables related to microfinance lending strategies (e.g., group lending techniques, cross-selling strategies, wider breadth of outreach, social-influence enhancement motivation) are more significant than those related to the governance or financial performance of a commercial microfinance institution. ❧ In the analysis on customer choice, six choices are examined. To illustrate, this research tries to discover the determinants of the following binominal choices: (1) whether to borrow money; (2) whether to choose formal microfinance lenders or informal ones; (3) whether to borrow money with collateral; (4) whether to borrow large loans; (5) whether to choose high-interest loans; and (6) whether to receive nonfinancial services. Notable findings are as follows. When choosing to borrow money, lower-income clients tend not to borrow money due to their weak repayment capacity. In the case of the choice of loans with collateral, lower-income clients, female clients and borrowers with business expenses commonly prefer loans with collateral. As for the choice of larger or smaller loans, people who need money for the purpose of resolving existing debts frequently choose large loans, which highlights the risk that people with debts can fall into debt traps with larger loans. ❧ The analysis on determinants of customer satisfaction finds that three key factors (the quality of relational service of loan officers, the capacity of service design to meet the needs of customers, and the appearance of physical facilities or personnel) are all significant in determining customer satisfaction and future intention to reuse the microfinance institution. Among them, the quality of relational service of loan officers has the largest impact, which disproves the argument that microfinance clients will be sufficiently satisfied if they can gain access to funds regardless of the quality of service. ❧ Lastly, this dissertation analyzes impacts on microfinance clients. In terms of income, borrowers from commercial microfinance institutions have not experienced significantly larger income increases compared with those who did not borrow money, and have experienced significantly larger income decrease than those who borrowed money from NGO MFIs. However, in terms of consumption or interest burden, several empirical results are found to support positive impacts of commercial MFIs. These findings imply that, while commercial microfinance might fail to promote the income-generating capacity of microfinance clients, it might protect them from financial risks such as consumption reduction or high interest burden.