0000493134 00000 n This paper calculates the costs of microcredit and other elements of the microcredit business model using proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers. A total of 14 models are existing in India.
Such institutions are usually formed by extensive help from NGOs and other organizations, who also train the community members in various financial activities of the community bank. In an accounting sense (i.e., whether revenues covers costs), the answer appears to be yes for the majority of institutions in our sample. Microfinance institutions are the oldest financial institutions in the world, but with time they have adapted to the changes, and have started using various credit lending models. 0000492722 00000 n The curve for banks draws on a small sample (n=46) but shows a generally pro-female orientation of subsidy. 310 37 xref Depending on their business model, these institutions target different types of borrowers, change the size of their loans and adjust their loan pricing. endobj 0000034018 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.
/T 1256575 /Size 347 0000003611 00000 n 0000004522 00000 n The data show that there are some heavily subsidized for-profit institutions, but most for-profits are only modestly subsidized.
stream 0000000017 00000 n Finally, because our calculations indicate that subsidy remains an important element of the current microfinance business model, they also underline the importance of pursuing new ways to change the cost structure faced by most microfinance institutions such as digital payments and mobile money.
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0000039698 00000 n Microfinance institutions aim to serve customers ill-served by traditional commercial banks and thus the associated business model is challenging by definition. Microfinance services are provided with different methods in India. /Prev 1256563 We show that there is no single microfinance business model, but rather a number of models pursued by different types of institutions.
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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. 0000004325 00000 n Figure 2 shows how the data on subsidy per unit lent lines up with the gender-orientation of institutions. /N 63 0000005102 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. << 0000039142 00000 n Indeed, this was a fundamental premise of microfinance. 0000492557 00000 n 0000040915 00000 n >> 0000025527 00000 n /Length 889 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. /StructTreeRoot 258 0 R /H [ 1409 981 ] /O 312 © 0000041195 00000 n 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.