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

  • 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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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
Note: SCOPUS: ar.j
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  1. Morduch, Jonathan, 2000. "The Microfinance Schism," World Development, Elsevier, vol. 28(4), pages 617-629, April.
  2. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
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  13. Patrick Honohan, 2004. "Financial Sector Policy and the Poor : Selected Findings and Issues," World Bank Publications, The World Bank, number 14874, December.
  14. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
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  17. Lapenu, Cécile, 2000. "The role of the state in promoting microfinance institutions," FCND briefs 89, International Food Policy Research Institute (IFPRI).
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