The Microfinance Business Model: Enduring Subsidy and Modest Profit

By Robert J. Cull, Asli Demirgüç-Kunt, J. Morduch. 2016

153 citations recorded by the source corpus.

Recent evidence suggests only modest social and economic impacts of microfinance. Favorable cost-benefit ratios then depend on low costs. This paper uses proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers, to calculate the costs of microfinance and other elements of the microfinance business model. It calculates that on average, subsidies amounted to $132 per borrower, but the distribution is highly skewed. The median microfinance institution used subsidies at a rate of just $26 per borrower, and no subsidy was used by the institution at the 25th percentile. These data suggest that, for some institutions, even modest benefits could yield impressive cost-benefit ratios. At the same time, the data show that the subsidy is large for some institutions. Counter to expectations, the most heavily-subsidized group of borrowers is customers of the most commercialized institutions, with an average of $275 per borrower and a median of $93. Customers of nongovernmental organizations, which focus on the poorest customers and women, receive a far smaller subsidy: the median microfinance nongovernmental organization used subsidy at a rate of $23 per borrower, and subsidy for the nongovernmental organization at the 25th percentile was just $3 per borrower.

Subfields: Economics and Econometrics, Management Information Systems, Safety Research

View Paper: https://www.semanticscholar.org/paper/b406f6af1368786d8a82e17496761c948be0b54e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Robert J. Cull
2. J. Morduch
3. Susanna Khavul
4. Asli Demirgüç-Kunt
5. V. Bogan
6. Bert D’Espallier
7. Roy Mersland
8. M. Hudon

In Management Information Systems

1. J. Morduch
2. Robert J. Cull
3. Susanna Khavul
4. V. Bogan
5. Bert D’Espallier
6. Peter W. Roberts
7. Michael Lounsbury
8. N. Hermes

In Safety Research

1. J. Morduch
2. Robert J. Cull
3. Gisele Kamanou

Citations in the corpus

• Determinants of the Performance of Microfinance Institutions: A Systematic Review (2018, unknown): “The median level of financial sustainability does not differ much between non-profit and/or NGOs on the one hand and for-profit or microfinance banks on the other hand (Cull et al. , 2016).”
• Microfinance and economic development (2017, background): “2 The literature suggests that microfinance impacts are modest and mixed, but, more optimistically, we also find relatively low costs to providing microfinance (Cull et al. 2017).”