Issues in Subsidies and Sustainability of Microfinance: An Empirical Investigation
AbstractThe social nature of Microfinance Institutions (MFIs) is mainly financed by subsidies received from the donors. This paper investigates the relationship between the sustainability and the efficiency of microfinance. Using Yaron’s Subsidy Dependence Index (SDI) as a measure of sustainability, a panel data set has been generated from the audit reports of the 179 MFIs worldwide. This essay empirically investigates some important relationships and phenomenons in microfinance. Even after correcting for the endogeneity bias, the results lend some support to the existence of mission drift tendency in microfinance. Notwithstanding interest rate policy, evidence is found that MFIs do charge higher interest rate to women borrowers with small loan sizes. Further, the determinants of MFIs profitability and sustainability have also been identified. Furthermore the evidence does not support the trade-off between outreach and sustainability, however, the trade-off between costs and sustainability of MFIs is well supported. While the productivity and efficiency of MFIs contributes towards sustainability.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 10-010.RS.
Length: 41 p.
Date of creation: 2010
Date of revision:
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Microfinance; Sustainability; Profitability; Mission Drift;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-27 (All new papers)
- NEP-CFN-2010-02-27 (Corporate Finance)
- NEP-CWA-2010-02-27 (Central & Western Asia)
- NEP-MFD-2010-02-27 (Microfinance)
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