Subsidies and Outreach in Microfinance Institutions

Abstract

We examine the effect of public giving — subsidies — versus private giving — donations — on microfinance institutions (MFIs) outreach and efficiency. With these separate measures, we compute the input and output oriented efficiencies for MFIs using stochastic frontier analysis. The data consist of 947 MFIs from 2000 to 2010 in 80 countries. We find that MFI are subsidies give greater efficiency and that outreach to poor borrowers, measured as percent female borrowers, average loan, and the number of credit clients, has negative impact on efficiency. However, outreach increases with donations.

Keywords: Microfinance, subsidies, donations, outreach, efficiency