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On the efficiency effects of subsidies in microfinance: an empirical inquiry

  • Marek Hudon
  • Daniel Traca

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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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/9239/1/dt-0010.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 06-020.RS.

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Length: 39 p.
Date of creation: Oct 2006
Date of revision:
Publication status: Published by: Centre Emile Bernheim
Handle: RePEc:sol:wpaper:06-020
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