The Microfinance Business Model: Enduring Subsidy and Modest Profit
Recent evidence suggests only modest social and economic impacts of microfinance. Favorable cost-benefit ratios then depend on low costs. This paper calculates the costs of microcredit and other elements of the microcredit business model using proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers. The costs of making small loans to poorer clients are high, and when revenues fall short of costs, subsidies are necessary to deliver services to those clients on a sustainable basis. Using a method that accounts for the opportunity costs of all forms of subsidy, the analysis finds that the median institution receives five cents of subsidy per dollar lent and $51 of subsidy per borrower (in PPP-adjusted terms). Relatively low levels of median subsidy suggest that even modest benefits of microcredit could yield impressive cost-benefit ratios. The distribution of subsidies is highly skewed, however: the average subsidy per dollar lent is 13 cents, and the average subsidy per borrower is $248. The data show that subsidies per borrower are substantially higher for commercial microfinance banks and some non-bank financial institutions that make relatively large loans. MFIs organized as non-governmental organizations (NGOs), in contrast, generally rely less on subsidy.
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Format: | Journal Article biblioteca |
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Published by Oxford University Press on behalf of the World Bank
2018-06
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Subjects: | MICROFINANCE, MICROCREDIT, POVERTY, SUBSIDIES, COST-BENEFIT ANALYSIS, COMMERCIALIZATION, IMPLICIT SUBSIDY, NONPROFIT, |
Online Access: | http://hdl.handle.net/10986/32775 http://dx.doi.org/10.1596/32775 |
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dig-okr-10986327752023-04-04T13:13:13Z The Microfinance Business Model: Enduring Subsidy and Modest Profit Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan MICROFINANCE MICROCREDIT POVERTY SUBSIDIES COST-BENEFIT ANALYSIS COMMERCIALIZATION IMPLICIT SUBSIDY NONPROFIT Recent evidence suggests only modest social and economic impacts of microfinance. Favorable cost-benefit ratios then depend on low costs. This paper calculates the costs of microcredit and other elements of the microcredit business model using proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers. The costs of making small loans to poorer clients are high, and when revenues fall short of costs, subsidies are necessary to deliver services to those clients on a sustainable basis. Using a method that accounts for the opportunity costs of all forms of subsidy, the analysis finds that the median institution receives five cents of subsidy per dollar lent and $51 of subsidy per borrower (in PPP-adjusted terms). Relatively low levels of median subsidy suggest that even modest benefits of microcredit could yield impressive cost-benefit ratios. The distribution of subsidies is highly skewed, however: the average subsidy per dollar lent is 13 cents, and the average subsidy per borrower is $248. The data show that subsidies per borrower are substantially higher for commercial microfinance banks and some non-bank financial institutions that make relatively large loans. MFIs organized as non-governmental organizations (NGOs), in contrast, generally rely less on subsidy. 2019-12-04T20:59:40Z 2019-12-04T20:59:40Z 2018-06 Journal Article Article de journal Artículo de revista World Bank Economic Review 1564-698X http://hdl.handle.net/10986/32775 http://dx.doi.org/10.1596/32775 World Bank Economic Review CC BY-NC-ND 3.0 IGO World Bank http://creativecommons.org/licenses/by-nc-nd/3.0/igo application/pdf Published by Oxford University Press on behalf of the World Bank |
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MICROFINANCE MICROCREDIT POVERTY SUBSIDIES COST-BENEFIT ANALYSIS COMMERCIALIZATION IMPLICIT SUBSIDY NONPROFIT MICROFINANCE MICROCREDIT POVERTY SUBSIDIES COST-BENEFIT ANALYSIS COMMERCIALIZATION IMPLICIT SUBSIDY NONPROFIT |
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MICROFINANCE MICROCREDIT POVERTY SUBSIDIES COST-BENEFIT ANALYSIS COMMERCIALIZATION IMPLICIT SUBSIDY NONPROFIT MICROFINANCE MICROCREDIT POVERTY SUBSIDIES COST-BENEFIT ANALYSIS COMMERCIALIZATION IMPLICIT SUBSIDY NONPROFIT Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan The Microfinance Business Model: Enduring Subsidy and Modest Profit |
description |
Recent evidence suggests only modest social and economic impacts of microfinance. Favorable cost-benefit ratios then depend on low costs. This paper calculates the costs of microcredit and other elements of the microcredit business model using proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers. The costs of making small loans to poorer clients are high, and when revenues fall short of costs, subsidies are necessary to deliver services to those clients on a sustainable basis. Using a method that accounts for the opportunity costs of all forms of subsidy, the analysis finds that the median institution receives five cents of subsidy per dollar lent and $51 of subsidy per borrower (in PPP-adjusted terms). Relatively low levels of median subsidy suggest that even modest benefits of microcredit could yield impressive cost-benefit ratios. The distribution of subsidies is highly skewed, however: the average subsidy per dollar lent is 13 cents, and the average subsidy per borrower is $248. The data show that subsidies per borrower are substantially higher for commercial microfinance banks and some non-bank financial institutions that make relatively large loans. MFIs organized as non-governmental organizations (NGOs), in contrast, generally rely less on subsidy. |
format |
Journal Article |
topic_facet |
MICROFINANCE MICROCREDIT POVERTY SUBSIDIES COST-BENEFIT ANALYSIS COMMERCIALIZATION IMPLICIT SUBSIDY NONPROFIT |
author |
Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan |
author_facet |
Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan |
author_sort |
Cull, Robert |
title |
The Microfinance Business Model: Enduring Subsidy and Modest Profit |
title_short |
The Microfinance Business Model: Enduring Subsidy and Modest Profit |
title_full |
The Microfinance Business Model: Enduring Subsidy and Modest Profit |
title_fullStr |
The Microfinance Business Model: Enduring Subsidy and Modest Profit |
title_full_unstemmed |
The Microfinance Business Model: Enduring Subsidy and Modest Profit |
title_sort |
microfinance business model: enduring subsidy and modest profit |
publisher |
Published by Oxford University Press on behalf of the World Bank |
publishDate |
2018-06 |
url |
http://hdl.handle.net/10986/32775 http://dx.doi.org/10.1596/32775 |
work_keys_str_mv |
AT cullrobert themicrofinancebusinessmodelenduringsubsidyandmodestprofit AT demirguckuntasli themicrofinancebusinessmodelenduringsubsidyandmodestprofit AT morduchjonathan themicrofinancebusinessmodelenduringsubsidyandmodestprofit AT cullrobert microfinancebusinessmodelenduringsubsidyandmodestprofit AT demirguckuntasli microfinancebusinessmodelenduringsubsidyandmodestprofit AT morduchjonathan microfinancebusinessmodelenduringsubsidyandmodestprofit |
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1767604040806432768 |