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

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  • Daniel Traca

Abstract

The impact of subsidies on the efficiency of microfinance institutions (MFIs) is a key question in the field, given the large volume of subsidies received over the last twenty years. Using an original database of rating agencies, this paper gives empirical evidence on the impact of subsidy intensity on the efficiency of MFIs. After correcting for endogeneity bias, our results suggest that subsidies have contributed to raise efficiency, for the majority of MFIs in our sample. However, the evidence suggests also that there is a level beyond which increased subsidization taxes efficiency, at the margin. In our sample, 50% of MFIs receive levels of subsidization higher than that threshold.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/89989.

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Date of creation: 01 Jun 2011
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Publication status: Published in: World development (2011) v.39 n° 6,p.966-973
Handle: RePEc:ulb:ulbeco:2013/89989

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Keywords: microfinance;

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References

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  1. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, Elsevier, vol. 60(1), pages 229-248, October.
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  7. Lapenu, Cécile, 2000. "The role of the state in promoting microfinance institutions," FCND discussion papers, International Food Policy Research Institute (IFPRI) 89, International Food Policy Research Institute (IFPRI).
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  9. Mathias Dewatripont & Eric Maskin, 2004. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9605, ULB -- Universite Libre de Bruxelles.
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  12. Niels Hermes & Robert Lensink, . "The empirics of microfinance: what do we know?," ULB Institutional Repository 2013/14198, ULB -- Universite Libre de Bruxelles.
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Citations

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Cited by:
  1. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
  2. 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, Elsevier, vol. 58(C), pages 1-20.
  3. D’Espallier, Bert & Hudon, Marek & Szafarz, Ariane, 2013. "Unsubsidized microfinance institutions," Economics Letters, Elsevier, Elsevier, vol. 120(2), pages 174-176.
  4. 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, Institute of Economic Research, Hitotsubashi University 26, Institute of Economic Research, Hitotsubashi University.
  5. Renaud Bourlès & Anastasia Cozarenco, 2013. "State Intervention and the (Micro)Credit Market in Developed Countries: Loan Guarantee and Business Development Services," Working Papers, HAL halshs-00811191, HAL.
  6. Carlos Serrano-Cinca & Begoña Gutiérrez-Nieto, 2012. "Microfinance, the long tail and mission drift," Working Papers CEB, ULB -- Universite Libre de Bruxelles 12-001, ULB -- Universite Libre de Bruxelles.
  7. Hudon, Marek & Périlleux, Anaïs, 2014. "Surplus distribution and characteristics of social enterprises: Evidence from microfinance," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 54(2), pages 147-157.
  8. 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.
  9. Szafarz, Ariane & Brière, Marie, 2011. "Investment in Microfinance Equity : Risk, Return, and Diversification Benefits," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/7858, Paris Dauphine University.
  10. Annabel Vanroose, 2008. "What macro factors make microfinance institutions reach out?," Working Papers CEB, ULB -- Universite Libre de Bruxelles 08-036.RS, ULB -- Universite Libre de Bruxelles.
  11. Ahmad Nawaz, 2010. "Issues in Subsidies and Sustainability of Microfinance: An Empirical Investigation," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-010.RS, ULB -- Universite Libre de Bruxelles.
  12. Ahmad Nawaz, 2010. "Efficiency and Productivity of Microfinance: Incorporating the Role of Subsidies," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-009.RS, ULB -- Universite Libre de Bruxelles.
  13. Janda, Karel & Zetek, Pavel, 2014. "The Impact of Public Spending on the Performance of Microfinance Institutions," MPRA Paper 55690, University Library of Munich, Germany.
  14. Biener, Christian & Eling, Martin & Schmit, Joan T., 2013. "Regulation in Microinsurance Markets: Principles, Practice, and Directions for Future Development," Working Papers on Finance, University of St. Gallen, School of Finance 1305, University of St. Gallen, School of Finance.
  15. 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, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University 2011-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  16. Dlamini, Menzie S., 2012. "The effect of subsidies on the performance and sustainability of microfinance institutions in sub-Saharan Africa," Research Theses, Collaborative Masters Program in Agricultural and Applied Economics 134487, Collaborative Masters Program in Agricultural and Applied Economics.

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