Too Many Cooks Spoil the Broth: The Conflicting Impacts of Subsidies and Deposits on the Cost-Efficiency of Microfinance Institutions

Anastasia Cozarenco, Valentina Hartarska (hartarska@auburn.edu) and Ariane Szafarz

No 19-001, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: The costs and benefits of subsidized microfinance are still a controversial topic. We evaluate how subsidies affect the cost-efficiency of microfinance institutions (MFIs). At the same time, we account for endogenous self-selection into the business models of credit-only versus credit-plus-deposit MFIs. Our findings draw a contrasting picture. First, they suggest that unsubsidized credit-plus-deposit MFIs have achieved optimal capacity and therefore constitute the most cost-efficient group of institutions in our sample. Second, the unsubsidized credit-only MFIs are the farthest away from their minimum cost. Between the two polar cases, there are subsidized institutions, among which the credit-only ones are closer to optimal capacity. Our results reveal the redundancy between subsidization and deposit-taking in microfinance. In conclusion, combining funds from donors and depositors tends to harm cost-efficiency.

Keywords: Microfinance; Cost efficiency; Scale economies; Subsidies; Deposit accounts (search for similar items in EconPapers)
JEL-codes: D24 F35 G21 O14 O16 (search for similar items in EconPapers)
Pages: 37 p.
Date: 2019-01-07
New Economics Papers: this item is included in nep-ban and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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