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On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry

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  • Hudon, Marek
  • Traca, Daniel

Abstract

Summary Using an original database of rating agencies, this paper gives empirical evidence on the impact of subsidy intensity on the efficiency of Microfinance Institutions (MFIs). We find that subsidies have had a positive impact on efficiency, in the sense that MFIs that received subsidies are more efficient than those that do not. However, we find also that subsidization beyond a certain threshold renders the marginal effect on efficiency negative. In our sample, 26% of MFIs receive levels of subsidization higher than that threshold, which implies that a marginal cut on subsidy intensity would increase their efficiency.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 39 (2011)
Issue (Month): 6 (June)
Pages: 966-973

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Handle: RePEc:eee:wdevel:v:39:y:2011:i:6:p:966-973

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Web page: http://www.elsevier.com/locate/worlddev

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Keywords: microfinance subsidies efficiency productivity;

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References

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Cited by:
  1. Mieno, Fumiharu & Kai, Hisako, 2012. "Do Subsidies Enhance or Erode the Cost Efficiency of Microfinance? Evidence from MFI Worldwide Micro Data," CEI Working Paper Series 2011-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  2. Renaud Bourlès & Anastasia Cozarenco, 2013. "State intervention and the (micro)credit market in developed countries: loan guarantee and business development services," Working Papers CEB 13-019, ULB -- Universite Libre de Bruxelles.
  3. Anastasia Cozarenco & Ariane Szafarz, 2013. "Female Access to Credit in France: How Microfinance Institutions Import Disparate Treatment from Banks," AMSE Working Papers 1350, Aix-Marseille School of Economics, Marseille, France, revised Dec 2013.
  4. Marie Briere & Ariane Szafarz, 2011. "Investment in Microfinance Equity: Risk, Return, and Diversification Benefits," Working Papers CEB 11-050, ULB -- Universite Libre de Bruxelles.
  5. Serrano-Cinca, Carlos & Gutiérrez-Nieto, Begoña, 2014. "Microfinance, the long tail and mission drift," International Business Review, Elsevier, vol. 23(1), pages 181-194.
  6. Barry, Thierno Amadou & Tacneng, Ruth, 2014. "The Impact of Governance and Institutional Quality on MFI Outreach and Financial Performance in Sub-Saharan Africa," World Development, Elsevier, vol. 58(C), pages 1-20.
  7. Biener, Christian & Eling, Martin & Schmit, Joan T., 2013. "Regulation in Microinsurance Markets: Principles, Practice, and Directions for Future Development," Working Papers on Finance 1305, University of St. Gallen, School of Finance.
  8. Dlamini, Menzie S., 2012. "The effect of subsidies on the performance and sustainability of microfinance institutions in sub-Saharan Africa," Research Theses 134487, Collaborative Masters Program in Agricultural and Applied Economics.
  9. D’Espallier, Bert & Hudon, Marek & Szafarz, Ariane, 2013. "Unsubsidized microfinance institutions," Economics Letters, Elsevier, vol. 120(2), pages 174-176.
  10. Annabel Vanroose, 2008. "What macro factors make microfinance institutions reach out?," Working Papers CEB 08-036.RS, ULB -- Universite Libre de Bruxelles.
  11. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
  12. Hudon, Marek & Périlleux, Anaïs, 2014. "Surplus distribution and characteristics of social enterprises: Evidence from microfinance," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 147-157.
  13. Ahmad Nawaz, 2010. "Issues in Subsidies and Sustainability of Microfinance: An Empirical Investigation," Working Papers CEB 10-010.RS, ULB -- Universite Libre de Bruxelles.
  14. Ahmad Nawaz, 2010. "Efficiency and Productivity of Microfinance: Incorporating the Role of Subsidies," Working Papers CEB 10-009.RS, ULB -- Universite Libre de Bruxelles.
  15. Janda, Karel & Zetek, Pavel, 2014. "The Impact of Public Spending on the Performance of Microfinance Institutions," MPRA Paper 55690, University Library of Munich, Germany.
  16. Mieno, Fumiharu & Kai, Hisako, 2012. "Do Subsidies Enhance or Erode the Cost Efficiency of Microfinance? Evidence from MFI Worldwide Micro Data," PRIMCED Discussion Paper Series 26, Institute of Economic Research, Hitotsubashi University.

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