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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.

Suggested Citation

  • Daniel Traca, 2011. "On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry," ULB Institutional Repository 2013/89989, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/89989
    Note: SCOPUS: ar.j
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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