Too Many Cooks Spoil the Broth: The Conflicting Impacts of Subsidies and Deposits on the Cost-Efficiency of Microfinance Institutions
Valentina Hartarska and
No 19-001, Working Papers CEB from ULB -- Universite Libre de Bruxelles
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: O14 D24 G21 O16 F35 (search for similar items in EconPapers)
Pages: 37 p.
New Economics Papers: this item is included in nep-ban and nep-mfd
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