Unsubsidized Microfinance Institutions

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.