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Potential demand for microloans: A household-level study

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Having an inclusive financial system is an important tool for economic and social development. Given the lack of depth of financial markets in emerging economies, microfinance represents a paradigm shift. It involves incorporating instruments into the financial management of households that can lead to a genuine reduction in vulnerability by generating greater access to durable consumer goods or housing. For this reason, this article analyzed the characteristics of households excluded from formal financial services in the city of Bahía Blanca, Argentina, in 2021. Once identified, they were used to calculate the potential demand for microcredits (MCs). This allows measuring the importance of having an alternative to meet the unsatisfied demand for small-scale credit of the population excluded from the formal financial market. Comparing the unsatisfied needs with the actual supply of MCs, the results obtained show a considerable scope for developing MC institutions in the city (but also in Argentina).


While there is no single definition of financial inclusion, numerous international organizations have contributed in an attempt to capture the substantive dimensions of this concept. Among the most widely used definitions in the literature, the World BankFootnote1 argues that “Financial inclusion means, for individuals and enterprises, having access to useful and affordable financial products that suit their needs—for transactions, payments, savings, credit and insurance—delivered in a responsible and sustainable way.” On the other hand, the Central Bank of the Argentine Republic (BCRA, as per its initials in Spanish)Footnote2 understands this notion as “access to and use of a wide range of financial services, provided in a sustainable and responsible manner” (BCRA, Citation2021). As can be seen in the different definitions, there are multiple dimensions to consider within the concept of financial inclusion. For this reason, its measurement becomes a complex task.

In this way, this article interprets financial inclusion as the development of certain financial tools, so that sectors excluded from the formal market can access safe, quality services at affordable prices. This allows the mobilization of savings and provides households and small businesses with financial resources for consumption and productive investment, reducing inequalities and contributing to economic growth (Martinez et al., Citation2022; Orazi et al., Citation2021). Specifically, access to finance increases the possibility of generating local economic activities, such as ventures and small business, all together with other important factors, such as human, social, and family capital (Brito et al., Citation2022; Ogundana et al., Citation2021) or even entrepreneurial mindset (Morris & Tucker, Citation2023), boosting local economic activity and regional development on a scale. Underlying these reasons are the motives for local governments to design programs (as shown in Nakku et al., Citation2020) considering particularly the characteristics of the local population.

The aim of this article was to examine the main determinants that influence the possession and use of some financial instruments, taking into account within them a set of characteristics of individuals from the city of Bahía Blanca, Argentina. Once these characteristics were detected, profiles of individuals were created in order to determine the probability of applying for a microcredit (MC) according to their sociodemographic aspects.

The structure of the article is as follows: the second section presents the main dimensions and approaches that define financial inclusion. The third section details the data used and methodologies applied. The fourth section provides the results obtained, and, finally, the fifth section outlines the conclusions of the study.

Dimensions and approaches outlining financial inclusion

There are two approaches related to microfinance institutions denominated: ”sustainability” and ”social impact” (Acevedo Stasiuk & García Fronti, Citation2015; Argandoña, Citation2009; Bekerman & Cataife, Citation2004; Tauro et al., Citation2020).

The first one refers to the ability of an institution to maintain a loan fund over time that makes it possible to operate in the future. It considers the efficiency and profitability of the institution. In other words, the institution does not require external funds and it can survive even if it does not receive external capital. On the other hand, the second type of microfinance institution prioritizes the social impact, so the selection and assistance of the most vulnerable beneficiaries to achieve improvement in their quality of life is the pillar on which MCs were developed (Abdulai & Tewari, Citation2017; Cataife & Bekerman, Citation2009; Céspedes & González, Citation2015; Gutiérrez Nieto, Citation2006).

There is a tradeoff between these two type of institutions, given that one of them prioritizes sustainability, so there is a need to select middle-income and stable clients or entrepreneurs who already have a secure track record, charging interest rates in line with the risk and costs of the segment, which tend to be higher due to the greater vulnerability of the clients and because the small amounts and the large number of clients mean that the costs of assessing, providing, and recovering loans are higher. On the other hand, if social impact is prioritized, the aim is to supply people with lower resources, unstable jobs, and nascent enterprises, trying to keep the interest rate as low as possible to boost income and generate greater impact on the quality of life of the beneficiaries (Gutiérrez Nieto & Serrano Cinca, Citation2019; Simatele & Dlamini, Citation2019).

While it is still debated whether these two dimensions are indeed antagonistic (Mersland & Strøm, Citation2010; Morduch, Citation2000), two traditional approaches to microfinance institutions can be identified, which put more weight on one or the other objective. First, following the minimalist or institutionalist theory, one type of microfinance institution aims for financial sustainability and limits their mission to providing financial services. For this, the scale is important, as well as the fact of maintaining an interest rate commensurate with the risk, which is high in absence of collaterals. Because this kind of potential claimer is deprived of any financial service, these families would be willing to pay competitive rates in order to obtain a quality, stable, and sustained service over time (United Nations Development Programme, Citation2016). These institutions do not consider as a target population the lowest segment of the socioeconomic ladder, which requires the attention of welfarist social policies and no returns (Weber & Ahmad, Citation2014). Besides the outreach maybe being greater, in the sense that they reach more clients, the social or welfare impact of these institutions is more limited. For example, in the work of Ali and Hatta (Citation2012), they showed that the impact of an institution with a minimalist approach has less impact on women’s empowerment.

Second, based on the welfarist (welfare) or solidarity finance theory, there are institutions that consider the social objective of microfinance to be paramount. This kind of institution works with the most vulnerable population, with more personalized financial services and complementing MCwith other services such as support and assistance, insurance and education programs, even if this means high costs and low returns (as interest rates would be lower), resulting in a constant dependence on funding from public or international bodies. On the other hand, they highlight the role of women in the provision of MCs, as it improves their position in the household, which further boosts the social impact, especially among minors (Argandoña, Citation2009; Blanco-Oliver et al., Citation2021; Céspedes & González, Citation2015; Leveau & Mercado, Citation2007). In any case, both institutions highlight the importance of the scale, given that their aims are increase and diversify the client portfolio, which implies better financial performance and allows better projections of sustainability over time, lower costs, and more competitive rates. Considering these main aspects of financial institutions is important to measure the potential demand, as in both cases it would be a way out of the tradeoff faced by the institutions.

Currently, beyond the traditional classification, other authors have found the emergence of a third group of institutions with an innovative and technological approach, which aim to achieve a great reach of customers undersupplied by the formal market, in order to lower the costs of providing financial services to this market segment and improving the competitiveness of the sector (Bastante, Citation2020; Carballo et al., Citation2016). Technological institutions or institutions with an innovative approach, known as fintech, have emerged to compete in financial markets around the world in the face of the widespread use of mobile technologies in all social classes, to offer financial services at low costs and with a large outreach. Some of them use alternative credit risk assessment or credit scoring methodologies (that is, instead of formal pay stubs or traditional collateral, they use different metrics with information on the individual’s collection and payment history, designed to provide easy and quick access to those who require it; Demirgüç-Kunt & Singer, Citation2017). In this way, within the MC market, they present a more contemporary and dynamic approach, providing small-scale credit in a sustainable way, achieving greater scale and reducing costs, so that interest rates can be lowered as the market becomes more competitive. In this way, they provide access to populations excluded from formal services, such as young people and poor households working informally or living in remote areas.

In summary, the three dimensions analyzed—sustainability, social impact, and fintech—form a triad in the management of any microfinance institution, and depending on the institution’s priority, it can be placed within the ideological models described above. The first two approaches are the traditional, institutionalist ones on the one hand, and solidarity finance on the other. In this article, we incorporate a third approach, based on the emergence of new financial providers that take advantage of the diffusion of technology and innovation in traditional lending practices, known as fintech.

Although the three approaches may seem antagonistic, they coexist in the market. It is not the aim of this article to favor one or another type of institution, but rather, given the diversity of approaches in the area, it is important to know the population on which a program or institution is trying to be promoted, to segment it according to its demands and its particular characteristics, and to quantify the unsatisfied demands that could be covered by a microfinance development policy.

Data and methodology

The data used in this article correspond to the results of the EPUE-2021 (in Spanish, “Encuesta del Proyecto de Unidad Ejecutora” survey carried out in the city of Bahía Blanca, Argentina, during December 2021. The results of this survey constitute the most extensive database available in the city, given that the sample size is much larger than that of the Permanent Household Survey (EPH), a quarterly survey conducted by the National Institute of Statistics and Census.

In contrast to the 300 to 500 households surveyed each quarter in the EPH, the EPUE-2021 managed to survey 1,421 households in the city, computing a total of 4,199 individuals. At the same time, EPUE-2021 achieved an unparalleled coverage of the most vulnerable neighborhoods of the city, so the results obtained are representative of the entire population of the city of Bahía Blanca.Footnote3

While the focus of this article will be on specific issues related to the financing of Bahia’s households according to the type of neighborhood to which they belong and the use of financial instruments, it should be noted that a large set of socioeconomic variables of the general population (food security, housing situation, social networks, and open government) are available at the individual level.

The methodology implemented in this article is descriptive statistics of the variables included in the financing section of the EPUE-2021. In all cases, we applied a Chi2 test to test the hypothesis of equality of means and the significance level of this test is highlighted.

On the other hand, an innovative estimation methodology was created to calculate the potential demand for MC, which combines theoretical debate and empirical evidence. It is carried out in four stages:

Stage 1: Classification of the microfinance institutions. First, based on the literature review, a theoretical classification of institutions based on their objectives is identified. In this way, an adjusted number of potential demand for each institution is obtained.

Stage 2: Calculation of target population. The total number of households with the characteristics sought by each institution is queried using the expansion factors from EPUE-2021.

Stage 3: Likelihood of wanting to apply for MC in the future. A probit model is applied. The dependent variable is binary and takes value 1 if the household would like to apply for an MC in the future and value 0 if they answered no. That is to say, based on the question of whether they would ask for a loan in the future and limited by the amount they would ask for, it is cut to a maximum of 12 minimum living and mobile wage as established by the Microcredit Law (No. 26.117). Considering the conformation of the three target population profiles, the three profiles are configured and the marginal probability is obtained, with a margin of 95 percent statistical confidence, which will be used as a minimum and maximum discount factor.

Stage 4: Calculation of the potential demand. The discount factor of the third stage is applied to the calculation of the target population obtained in the second stage. In other words, for each profile, the probability of wanting to apply for an MC in the future is applied, because not all the target population will pretend to apply for the service. In this way, instead of assuming it as external data, based on the survey conducted, we can obtain this discount factor from the preference structure of each profile. In this way, we obtain a maximum and minimum of potential demand for each profile of households that are part of the target population of each institution in the city of Bahía Blanca. In order to promote a microfinance institution in the city, it is important to know the exact number of households that could be part of an MC program of different types. For this reason, an estimation of potential demand was made, taking into account both theories: that distinguishes by type of institution, as well as the preferences of each profile to apply for an MC in the future.

Following the proposed methodology, in the first step, based on the three theoretical approaches to microfinance institutions that may arise in the market (institutionalist microfinance institution, solidarity microfinance, and the technological or fintech), the profiles of the target population that each of them would seek are formed as follows: In the first group of institutions, with an institutionalist or minimalist approach to MC, an important weight is given to financial sustainability. The aim is to provide to a population that is underserved by formal services, with small-scale loans, but minimizing risk and generating scale. In order to achieve these objectives, the target population is middle class, middle income, and middle educated.

Thus, the first household profile selected for the calculation of the target population, as shows, is a breadwinner without distinction by gender, of an occupational category that is not formally employed, because, having a stable income and a salary receipt, they are more likely to have access to the traditional credit market. On the other hand, a medium level of education, up to incomplete higher education, is taken, because professionals with complete higher education have greater access to bank credit. It is established that the household cannot save, because the higher the income, the more households can face daily financial difficulties with their own funds or access bank credit more easily. Subjective income was used instead of nominal household income, as it is more consistent in the regressions. In turn, it was established that they have a bank account, as the supply is channeled through the banking system and the credit assessment is the traditional one based on reviewing financial history.

Table 1. Profiling by microfinance institutions approach.

The second profile of institutions with a solidarity, welfare, or welfarist finance approach tends to focus on the poor with a gender perspective. They use alternative credit assessment methods, such as solidarity groups or peer-to-peer guarantees, to carry out disbursements in a secure manner. For this reason, the target population was defined as households with the following characteristics: female home breadwinners, who are not professionals (up to incomplete higher education) and who do not have a formal job, as they are those who cannot access the formal credit market. They are also expected to be unable to save and to be located in vulnerable neighborhoods in order to strengthen the social impact effect.

In the third technological or fintech approach, institutions seek to serve the population excluded from traditional financial services through innovation in customer communication and credit risk assessment, using information and mobile technologies that are now widely available in all social strata. In this way, the time and costs of MC assessment and provision are reduced. The third approach differs from the first approach where it does not require traditional credit assessment and seeks indirect communication with users through mobile applications, with simple interfaces and focused on the population excluded by the traditional system. At the same time, it also differs from the second approach where it loses the direct, personal communication, tailored to the reality of each user, which is promoted by solidarity finance institutions. At the same time, they have not emerged with the same social objective of fighting poverty, but with the spread of mobile technology and the existence of an unattended market niche, the opportunity to enter the microfinance market was generated. For this third profile, it was established that the breadwinner should not be professionals or formally employed, and that they should not be able to save for the same reasons as the previous profiles: to target MCs to the population excluded from the traditional financial system. In this case, at least one member of the household must have an electronic wallet, as this variable determines whether they can access mobile applications for financial services.

shows the results of the estimation of potential demand in the city of Bahía Blanca, according to each stage of the proposed methodology, in order to know the number of individuals of the different profiles who would like to apply for an MC in the future.

Table 2. Estimates of potential demand of microcredits in Bahía Blanca.

As can be seen, is divided into three columns according to the MC institution classification that corresponds to the first stage of the methodology. In the second row of the table, the number of households that make up the total target population of each institution profile is highlighted. The profile with the largest target population is the first, traditional finance or institutionalist profile, comprising a total of 18.980 potential low-scale credit client households. This is followed by the third profile of lower-income and formal households that have an electronic wallet and could access a fintech to meet their credit demands. Around 10,000 households make up this profile.

The solidarity finance institutions have the smallest target population. Moreover, the probability of wanting to apply for MC in the future of the people who make up profile 2 is the highest of the three profiles, similar to what was found in the descriptive tables, where the lower-income population in vulnerable neighborhoods have the highest future demand for credit.

The fourth stage highlights the estimation of potential demand for each type of institution analyzed, multiplying the total target population from the second stage by the probability that they would want to apply for an MC according to their profile, calculated in the third stage. Institutional microfinance (profile 1) has the highest potential demand, where 3,000 households with a bank account would want to apply for an MC in the future.

If we consider, for example, the size of the largest national institutional in the province of Buenos Aires (Provincia Microcréditos S.A.), in 2019 it had a total of 40,000 active clients (Argentine Microcredit Network, 2019). According to the results obtained for profile 1, if this institution were to focus on meeting the demands of potential applicants in Bahía Blanca, it could increase its client portfolio by 7.7 percent. Even Fundación Banco Provincia of Córdoba had only 2,342 active clients in 2019, even though it has a provincial scale.

In order of number of potential borrowers, they are followed by technological or fintech institutions (profile 3), which would find an average of 1,612 households that would comprise their target population and would like to apply for an MC. Considering that the provision costs are very low, the scale does not represent a difficulty for this type of institution, although it is necessary to continue evaluating the effectiveness of alternative scoring methodologies to the traditional one, which are in an initial stage in the country, in order to avoid over-indebting the population and having high default rates. The establishment of state regulations in the market is under discussion, in order to generate a framework that allows for its growth but at the same time protects the population from future problems with data security. Finally, related to the second profile, although the smallest amount of potential demand was obtained in comparison with the other profiles, a similar size of potential demand was found to the number of active clients of the largest solidarity microfinance institutions in the country, such as Avanzar or Nuestras Huellas, since they have a number of clients close to 700 users (Argentine Microcredit Network, Citation2019).

Therefore, there is a wide space for the development of MCinstitutions in the city of Bahía Blanca, Argentina, which must be applied with policies of economic stability that strengthen the entrepreneurial capacities of households.


This article addressed the issue of financial inclusion in households in Bahía Blanca, Argentina, in order to detect the number of them that would demand an MC.

The potential demand for MC was estimated under a novel methodology that combines theory, considering different types of microfinance institutions, with empirical data collected in the city of Bahía Blanca with the EPUE-2021 database. The results obtained show a considerable scope for developing MC institutions, compared to the latest estimate of active users of MC institutions reporting to the Argentine Microcredit Network.

As can be seen, women, those without higher education, people who cannot save, and those living in vulnerable neighborhoods (second profile) represent the group of individuals most likely to demand external financing (up to 32 percent). In turn, those people with similar characteristics, regardless of gender and place of residence, who have a bank account and/or an electronic wallet (profiles 1 and 3), show a maximum probability of 21 percent of requesting an MC in the future, being greater than the volume of people who have an account and a payment history. For this reason, it is imperative to implement public policies that promote formal external financing for individuals based on their characteristics and specific needs.

The growth limitations of the Argentine market are widely recognized, justified in part by the existence of a large informal market, deep economic cycles, and the persistence of inflation. This limits the interest of private capital and discourages the efforts of nonprofit organizations to generate a solid and stable credit supply.

Disclosure statement

No potential conflict of interest was reported by the authors.


3 The survey does not include the locality of Cabildo or the surrounding rural areas. For more information, see Santos (Citation2022).


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