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

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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 languageEnglish (US)
Pages (from-to)229-248
Number of pages20
JournalJournal of Development Economics
Issue number1
StatePublished - Oct 1999


  • Cost-benefit analysis
  • Group lending
  • Microfinance

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics


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