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A Cost-Effectiveness Analysis of the Grameen Bank of Bangladesh

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  • Mark Schreiner

    (Washington University in St. Louis)

Abstract

In the next ten years, advocates of microfinance organizations (MFOs) will seek more than $20 billion to provide small loans to 100 million of the poorest families worldwide. In the United States, the newest federal budget proposes a 159-percent increase in the about $200 million spent per year on domestic microfinance. Most of the excitement for the promise of microfinance in the United States has been sparked by reports of the success of the Grameen Bank of Bangladesh. Was Grameen a good use of scarce funds earmarked to help the poor? For the time frame of 1983- 96, I find that the present worth of benefits of Grameen exceeded the present worth of costs ($16.4 million) as long as the average member got more than $8 worth of surplus per year of membership. This result is robust to assumptions about opportunity costs. Given the documented impacts of Grameen, my guess is that benefits did in fact exceed costs. Grameen seems to have been a good way to help the poor. Still, one good MFO does not a microfinance crusade make, and most MFOs in the United States and worldwide do not perform as well as Grameen. CEA is an inexpensive tool to help to inform the judgement of whether a given MFO is a good way to help the poor.

Suggested Citation

  • Mark Schreiner, 2001. "A Cost-Effectiveness Analysis of the Grameen Bank of Bangladesh," Development and Comp Systems 0109007, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpdc:0109007
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    References listed on IDEAS

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    1. Bhatt, Nitin & Tang, Shui-Yan, 1998. "The problem of transaction costs in group-based microlending: An institutional perspective," World Development, Elsevier, vol. 26(4), pages 623-637, April.
    2. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
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    4. Hossain, Mahabub, 1988. "Credit for alleviation of rural poverty: the Grameen Bank in Bangladesh," Research reports 65, International Food Policy Research Institute (IFPRI).
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    6. Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October.
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    Cited by:

    1. repec:ilo:ilowps:464322 is not listed on IDEAS
    2. MkNelly, Barbara & Kevane, Michael, 2002. "Improving Design and Performance of Group Lending: Suggestions from Burkina Faso," World Development, Elsevier, vol. 30(11), pages 2017-2032, November.
    3. Weiss, John & Montgomery, Heather & Kurmanalieva, Elvira, 2003. "Micro finance and poverty reduction in Asia: what is the evidence?," MPRA Paper 33140, University Library of Munich, Germany.
    4. Niels Hermes & Marek Hudon, 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Working Papers CEB 18-024, ULB -- Universite Libre de Bruxelles.
    5. Serra, Renata. & Botti, Fabrizio., 2011. "Walking on a tightrope : balancing MF financial sustainability and poverty orientation in Mali," ILO Working Papers 994643223402676, International Labour Organization.
    6. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 33(3-4), pages 391-416.
    7. Prabal Roy Chowdhury, 2004. "Group-lending with sequential financing, joint liability and social capital," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-23, Indian Statistical Institute, New Delhi, India.
    8. Zahra, Shaker A. & Gedajlovic, Eric & Neubaum, Donald O. & Shulman, Joel M., 2009. "A typology of social entrepreneurs: Motives, search processes and ethical challenges," Journal of Business Venturing, Elsevier, vol. 24(5), pages 519-532, September.
    9. Chowdhury, Prabal Roy, 2005. "Group-lending: Sequential financing, lender monitoring and joint liability," Journal of Development Economics, Elsevier, vol. 77(2), pages 415-439, August.
    10. Esayas Bekele Geleta, 2014. "Social Capital as Collateral: Banking on the Poor," American Journal of Economics and Sociology, Wiley Blackwell, vol. 73(1), pages 108-125, January.
    11. Subir Bairagi & Azzeddine Azzam, 2014. "Does the Grameen Bank exert market power over borrowers?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(12), pages 866-869, August.
    12. repec:dau:papers:123456789/4391 is not listed on IDEAS
    13. Niels Hermes & Marek Hudon, 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Working Papers CEB 18-024, ULB -- Universite Libre de Bruxelles.
    14. Ahmad Nawaz, 2010. "Performance of Microfinance: The Role of Subsidies," Working Papers CEB 10-008.RS, ULB -- Universite Libre de Bruxelles.
    15. Islam, Jamal & Mohajan, Haradhan & Datta, Rajib, 2012. "Aspects of microfinance system of Grameen Bank of Bangladesh," MPRA Paper 50691, University Library of Munich, Germany, revised 27 Mar 2012.
    16. Flore Gubert & François Roubaud, 2005. "Analyser l’impact d’un projet de Micro-finance : l’exemple d’ADéFI à Madagascar," Working Papers DT/2005/14, DIAL (Développement, Institutions et Mondialisation).
    17. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    18. Shakil Quayes & Baqui Khalily, 2013. "Efficiency of Microfinance Institutions in Bangladesh," Working Papers 19, Institute of Microfinance (InM).

    More about this item

    Keywords

    Cost-effectiveness analysis; microfinance; bank management; self-sustainability;

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • N3 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy

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