The role of subsidies in microfinance: Evidence from the Grameen Bank

Jonathan Morduch

doi:10.1016/S0304-3878(99)00042-5

The role of subsidies in microfinance: Evidence from the Grameen Bank

Research output: Contribution to journal › Article › peer-review

Abstract

The Grameen Bank of Bangladesh has been in the vanguard of the microfinance movement, showing the potential to alleviate poverty by providing credit to poor households. Part of this success has been built on subsidies. In 1996, for example, total subsidies evaluated at the economic opportunity cost of capital amounted to about US$26-30 million. The evidence helps to explain why institutions like Grameen have not just sprung up on their own as private commercial ventures, and it underscores the value of openly addressing the costs and benefits of subsidization. The paper also describes recent difficulties in maintaining high repayment rates.

Original language	English (US)
Pages (from-to)	229-248
Number of pages	20
Journal	Journal of Development Economics
Volume	60
Issue number	1
DOIs	https://doi.org/10.1016/S0304-3878(99)00042-5
State	Published - Oct 1999

Keywords

Cost-benefit analysis
Group lending
Microfinance

ASJC Scopus subject areas

Development
Economics and Econometrics

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10.1016/S0304-3878(99)00042-5

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title = "The role of subsidies in microfinance: Evidence from the Grameen Bank",

abstract = "The Grameen Bank of Bangladesh has been in the vanguard of the microfinance movement, showing the potential to alleviate poverty by providing credit to poor households. Part of this success has been built on subsidies. In 1996, for example, total subsidies evaluated at the economic opportunity cost of capital amounted to about US$26-30 million. The evidence helps to explain why institutions like Grameen have not just sprung up on their own as private commercial ventures, and it underscores the value of openly addressing the costs and benefits of subsidization. The paper also describes recent difficulties in maintaining high repayment rates.",

keywords = "Cost-benefit analysis, Group lending, Microfinance",

author = "Jonathan Morduch",

note = "Funding Information: This paper reports on results described in greater detail in Morduch (1999a). I have benefited from discussions with Syed Hashemi, Iftekhar Hossain, Shahid Kandker, Baqui Kahlily, Zahed Khan, and Jacob Yaron. Aimee Chin provided excellent research assistance. Asif Dowla, Karla Hoff, Stuart Rutherford, Mark Schreiner, and two anonymous referees provided helpful comments. I particularly benefited from conversations with Muzammel Huq, M. Shajahan, and other Grameen Bank staff in Dhaka and Tangail in June 1997. The study was largely completed during a year as a National Fellow at the Hoover Institution, Stanford University. I also appreciate support from the John D. and Catherine T. MacArthur Foundation. All views and any errors are mine solely.",

year = "1999",

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doi = "10.1016/S0304-3878(99)00042-5",

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AB - The Grameen Bank of Bangladesh has been in the vanguard of the microfinance movement, showing the potential to alleviate poverty by providing credit to poor households. Part of this success has been built on subsidies. In 1996, for example, total subsidies evaluated at the economic opportunity cost of capital amounted to about US$26-30 million. The evidence helps to explain why institutions like Grameen have not just sprung up on their own as private commercial ventures, and it underscores the value of openly addressing the costs and benefits of subsidization. The paper also describes recent difficulties in maintaining high repayment rates.

KW - Cost-benefit analysis

KW - Group lending

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The role of subsidies in microfinance: Evidence from the Grameen Bank

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Keywords

ASJC Scopus subject areas

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