Unsubsidized Microfinance Institutions

Examining how unsubsidized MFIs cope with their social mission
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This paper compares the social performances of unsubsidized MFIs to those of their subsidized counterparts. It states that the lack of subsidies worsens social performances and that 23% of the world's MFIs manage without subsidies. The paper bases its findings on a cross-sectional analysis of database extracted from annual accounting statements from the Microfinance Information Exchange (MixMarket). It uses a worldwide sample of 1,074 MFIs active in 98 countries in 2010. The bulk of the microfinance industry in developing and emerging countries is subsidy-dependent. However, its results show that strategies to achieve financial self-sufficiency differ substantially across regions. Findings include:

  • Unsubsidized MFIs have a lower share of female borrowers and reach a less poor clientele than their subsidized counterparts;
  • Although subsidy takers tend more frequently to be for-profit oriented than subsidy-free institutions, financial performance and interest rates do not seem to vary with subsidization;
  • African and Asian MFIs compensate for non-subsidization by charging higher interest rates;
  • In Eastern Europe and Central Asia, unsubsidized MFIs find it more suitable to target less poor clients;
  • Unsubsidized Latin American MFIs tend to reduce their share of female borrowers.

About this Publication

By D'Espallier, B., Hudon, M. , Szafarz, A.