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Development Finance Institutions : Measuring Their Subsidy

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  • Mark Schreiner
  • Jacob Yaron

Abstract

The term "development finance institutions" (DFI) encompasses no only government development banks, but also nongovernmental micro-finance organizations, that match grants to attempt to promote community development, decentralization of power, and local empowerment. Measures of the social cost of DFIs that receive public funds, help to check whether DFIs are good uses of public funds, i.e., if the social benefit of a DFI exceeds the social cost, then public funds are indeed well-spent, further improving social welfare. This report describes the measurement of costs but not of benefits; but even without knowledge of benefits, knowledge of costs can help to adequately spend funds. Two measures of social cost are presented: first, the Subsidy Dependence Index (SDI) - the ratio of subsidy received to revenue from loans; and, subsidy is the social cost of the public funds used to run a DFI - which does not discount flows, rather it works in short time frames, or when the rate of time preference is low; second, the Net Present Cost to Society (NPCs) - like standard present-value measures, it discounts cash flows, and works in any time frame. Both SDI and NPCs are tools, to help establish benchmarks, chart trends, and compare a DFI with identical clients, and services. It is stipulated that measurement of the social cost of public DFIs matters because funds earmarked for development are scarce, while subsidies for DFIs could be adequate, provided social welfare improves in a broader scale.

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Bibliographic Info

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This book is provided by The World Bank in its series World Bank Publications with number 13983 and published in 2001-10.

ISBN: 0-8213-4984-8
Handle: RePEc:wbk:wbpubs:13983

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Related research

Keywords: Economic Theory and Research Banks and Banking Reform Macroeconomics and Economic Growth - Economic Adjustment and Lending Payment Systems and Infrastructure Public Sector Economics and Finance Finance and Financial Sector Development;

References

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Citations

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Cited by:
  1. Mark Schreiner, 2001. "Resources Used to Produce Individual Development Accounts in the First Two Years of the Experimental Program of the American Dream Demonstration at the Community Action Project of Tulsa County," Finance 0108003, EconWPA, revised 27 Dec 2001.
  2. Richard L Meyer, 2009. "Track Record of Financial Institutions in Assisting the Poor in Asia," Working Papers id:2284, eSocialSciences.
  3. Francisco, Manuela & Mascaro, Yira & Mendoza, Juan Carlos & Yaron, Jacob, 2008. "Measuring the performance and achievement of social objectives of development finance institutions," Policy Research Working Paper Series 4506, The World Bank.
  4. Ahmad Nawaz, 2010. "Performance of Microfinance: The Role of Subsidies," Working Papers CEB 10-008.RS, ULB -- Universite Libre de Bruxelles.

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