2003, Edwin Mellon Press
, ISBN 0–7734–6730–0.
Doctoral dissertation, December 1997: A Framework for the Analysis
of the Performance and Sustainability of Subsidized Microfinance Organizations
with Application to BancoSol of Bolivia and Grameen Bank of Bangladesh
Department of Agricultural,
Environmental, and Development Economics
Rural Finance Group
The Ohio State University
.
Committee: Douglas H. Graham
(chair), Claudio Gonzalez-Vega
, Mario Miranda
Abstract
In the next ten years, society will spend more than $20 billion on microfinance organizations (MFOs). Are MFOs the best way to help the poor? Will donors see MFOs as a good development gamble? Will MFOs reward workers well? Will investors buy MFOs and start new ones from scratch? I suggest a framework to help answer these questions with numbers.
Performance is meeting goals. Sustainability is meeting goals now and in the long term. An MFO has six groups of stakeholders: society, the poor, poor customers, donors, workers, and investors. Each group constrains the rest. Each group has its own goals and thus its own measures of performance.
For society, a good MFO makes more social benefits than social costs.
For the poor, a good MFO is the best use of the funds in the budget earmarked to help the poor. It costs more to measure benefits than to measure costs. Cost-effectiveness analysis can help to judge whether unmeasured benefits could exceed measured costs.
For poor customers, a good MFO gets repeated use.
For donors, a good MFO uses public funds to attract market funds.
For the workers of an MFO, a good MFO means a good job. Such an MFO would not shrink if donors withdrew support.
For investors, good performance means a market return.
I use the framework with two of the best MFOs in the world, BancoSol in Bolivia and Grameen Bank in Bangladesh. I judge both to have been worthwhile. They used public funds to help the poor more than the marginal development project. The net present cost of BancoSol for the poor through 1987-1996 as seen in 1987 was about 6 cents per dollar year of debt produced. At Grameen, the net present cost to the poor through 1983-1994 as seen from 1983 was about $8 per year of membership produced.
The customers at both BancoSol and Grameen repeat, and the workers at the both banks have good jobs. BancoSol attracts market funds, and Grameen does not. This suggests that investors may buy the best MFOs once start-up costs are sunk. But investors do not start the best MFOs, and much less the worse MFOs, from scratch.
At least the best MFOs are worthwhile. The rest may still waste public funds meant to help the poor. Cost-effectiveness analysis is a cheap tool to help judge.
[ Complete paper ] [ Condensed paper ] [Back ]