And yet the industry has achieved impressive scale reaching 211 million customers globally in But are those higher interest rates enough to cover the costs of reaching harder-to-serve clients?
Figure 2 shows how the data on subsidy per unit lent lines up with the gender-orientation of institutions. It calculates that on average, subsidies amounted to $132 per borrower, but the distribution is highly skewed. 0000003469 00000 n "Microfinance:Credit Lending Models" is an attempt to document the various models currently being used by microfinance institutions throughout the world.
/L 1262903 0000017293 00000 n
0000003611 00000 n And yet the industry has achieved impressive scale reaching 211 million customers globally in 2013. Table 1 shows that the mean subsidy per borrower for commercial microfinance banks is $275, while for NGOs the mean is $101.
311 0 obj 0000003305 00000 n /N 63 Paradoxically, recent evidence suggests that the benefits of microcredit to borrowers may be modest. /Metadata 257 0 R 0000000017 00000 n When we use the local prime interest rate as the opportunity cost of capital, only about one-third of the institutions are economically profitable.Because the range in subsidy per dollar lent across types is narrow, while their average loan sizes vary widely (with more commercially oriented, for-profit institutions making substantially larger loans), subsidies per borrower tend to be relatively small for NGO microfinance institutions. >> stream The data show that there are some heavily subsidized for-profit institutions, but most for-profits are only modestly subsidized. 0000016108 00000 n /E 493379 /OCProperties << /D << /Order [ ] /RBGroups [ ] >> /OCGs [ 343 0 R ] >>
0000039142 00000 n 0000002937 00000 n <<
/H [ 1409 981 ] /Pages 240 0 R 0000492722 00000 n Microfinance Business Model “Microfinance” is often outlined as financial solutions for inadequate and reduced-revenue purchasers. 0000039698 00000 n Modest benefits to borrowers could nonetheless feed into sizable benefit-cost ratios if the costs are also proportionally small.
However, once we take account of the opportunity costs of the capital received by those institutions, a much smaller share of them is profitable in an economic sense.
/ID [<206135643c6d613c0f7d1fc7111d437c><206135643c6d613c0f7d1fc7111d437c>] 0000040915 00000 n 0000001409 00000 n 0000025634 00000 n endobj For-profit microfinance institutions as a group receive more subsidy per borrower on average, relative to not-for-profits ($178 versus $108), though the picture switches with the medians ($14 versus $32). x�c```b``md`c``�� ̀ ���, �,�#��nD�022d,�c4e��`;�Ы �ì������Q��y�/�� BO�:�� ���0L~ ������W�C��5=������]$��+��r��k�71Y38\`��Ơ��S�a�aK�|ь� �_�5J8p�a�v�`{�U���ȌI��x��NhUym�,q�{�{�����l]^W6O� ���vy�F��En�R^�����RXq��c�Q)W(��ڤ��o�l�z�FbS���i�dvE�V˕ږ�0�Mg�n��f1�[�9wo�0L9�8��˒��b~�: G'��F����Ŝ;�}�
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0000034136 00000 n 0 Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). 0000025089 00000 n 0000033899 00000 n In addition, the paper provides evidence that dependence on subsidies declines but does not disappear as institutions become older, and in fact many older institutions continue to rely upon substantial subsidies. /Size 347 0000033572 00000 n
To better understand how microfinance institutions target their customers and cover the costs associated with reaching them, we use proprietary data from 930 microfinance institutions that jointly served 80 million customers in 2009. For NBFIs, however, the largest subsidy per unit goes to institutions that tend to favor men. >> %%EOF >> xref 0000041195 00000 n 0000004325 00000 n 310 37 Microfinance institutions aim to serve customers ill-served by traditional commercial banks and thus the associated business model is challenging by definition. %PDF-1.4 /Type /Catalog
<< Indeed, this was a fundamental premise of microfinance. In follow, the term is generally used extra narrowly to refer to loans and other providers from providers that determine on their own as “microfinance institutions” (MFIs). 0000005102 00000 n The relationship for NGOs is flat. /Length 889
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And the finding that per-borrower subsidies are relatively small for parts of the NGO sector more focused on women and those making smaller loans, reinforces the call for cost-benefit analyses to place pessimistic conclusions drawn from recent impact studies in a fuller context. By tilting away from those who may be able to benefit most from subsidies (poorer customers and women), microfinance subsidies support institutions that may not be the most worthy of them, at least from the vantage of traditional social analysis. We show that there is no single microfinance business model, but rather a number of models pursued by different types of institutions. Not only do they make smaller loans (the proxy for lending to poorer borrowers in much of the literature and in our analysis), NGO microfinance institutions also lend substantially higher shares of their portfolios to women. Microfinance institutions aim to serve customers ill-served by traditional commercial banks and thus the associated business model is challenging by definition. 0000493134 00000 n Still, most for-profits are subsidized. /StructTreeRoot 258 0 R 0000492612 00000 n Once considered the panacea for pulling the un-bankable out of poverty, microfinance has recently come under heavy scrutiny from the public, media, and regulators. 0000033754 00000 n 0000039613 00000 n Even if one takes those modest benefits at face value, it would be wrong to consider the microfinance business model a failure without paying greater attention to the costs incurred to achieve those benefits.
0000003024 00000 n /Root 311 0 R Those chartered as non-governmental organizations (NGOs) tend to make smaller loans (panel A), which are substantially more costly per dollar lent (panel B), and thus require higher interest rates (panel C), than microfinance providers chartered as banks or non-bank financial institutions (NBFIs). trailer 0000039655 00000 n 0000001212 00000 n /O 312 /S 1485 endobj ... Small Business Model The prevailing vision of the 'informal sector' is one of survival, low productivity and very little value added. 0000025680 00000 n The median microfinance institution used /Prev 1256563 >> /Linearized 1