is product diversification the ultimate quid pro quo for gender sensitive poverty alleviation? adverse social externalities from combined microfinance in latin america and the caribbean

Documented deficiencies in traditional social transfer mechanisms have led to the emergence of alternative methods for reducing poverty. In many countries, microfinance institutions (MFIs) have become popular instruments for redistributive propoor policies. However, they are also criticised for not being inclusive enough. This paper explores if product diversification has an effect on poverty outreach, in particular when combining micro- credit with savings and insurance. It applies cross-sectional analysis of 250 microfinance schemes in Latin America and the Caribbean. By focusing on elements of the depth of poverty outreach, the research highlights a number of possible effects of combined microfinance (CMF). Product diversification can significantly contribute to increased social outreach («breadth» of poverty outreach). However, the findings suggest that, in the case of combining credit with savings, this is leading to a relatively lower participation of poor and female clients («depth» of poverty outreach). Exclusionary and discriminatory vulnerabilities and dynamics, linked to specific financial products, may apply double or even reinforce each other. Cumulative financial, cultural, geographical or communication barriers can make participation in multiple financial products more challenging. These findings have not been adequately tackled by academic literature, but are most relevant for MFI stakeholders and policy makers. If gender-sensitive or pro-poor income generation is at the heart of the mission of MFIs, corrective measures to these forms of adverse externalities should be considered.