Document Type

Honors Project - Open Access


This study tests the assertion that membership growth in credit unions is constrained by their unique structural features, such as their non-profit mission and member-based ownership. Although these features enhance inclusiveness, existing theory suggest that they work against efficiency when membership grows too diffuse. To address this issue, this study uses a model that takes into account existing theory on constrained-optimization in credit unions and theory on the adverse effects of diffuse ownership. Using data on 36 public credit unions in Ecuador, the empirical analysis finds evidence that credit unions can achieve economies of scale despite their problematic structural features. One possible explanation for this result may stem from the level of formality in Ecuador’s financial system including its level of prudential regulation, information technology, and capital market formation. Moreover, the optimal credit union size may be a function of institutional and technological development in addition to their unique structural features. This conclusion has important implications on policies aimed at expanding credit access in developing financial markets.



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