Issues in Subsidies and Sustainability of Microfinance: An Empirical Investigation

Ahmad Nawaz

No 10-010.RS, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: The social nature of Microfinance Institutions (MFIs) is mainly financed by subsidies received from the donors. This paper investigates the relationship between the sustainability and the efficiency of microfinance. Using Yaron’s Subsidy Dependence Index (SDI) as a measure of sustainability, a panel data set has been generated from the audit reports of the 179 MFIs worldwide. This essay empirically investigates some important relationships and phenomenons in microfinance. Even after correcting for the endogeneity bias, the results lend some support to the existence of mission drift tendency in microfinance. Notwithstanding interest rate policy, evidence is found that MFIs do charge higher interest rate to women borrowers with small loan sizes. Further, the determinants of MFIs profitability and sustainability have also been identified. Furthermore the evidence does not support the trade-off between outreach and sustainability, however, the trade-off between costs and sustainability of MFIs is well supported. While the productivity and efficiency of MFIs contributes towards sustainability.

Keywords: Microfinance; Sustainability; Profitability; Mission Drift (search for similar items in EconPapers)
JEL-codes: G21 G28 O57 (search for similar items in EconPapers)
Pages: 41 p.
Date: 2010
New Economics Papers: this item is included in nep-cfn, nep-cwa and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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