A Cost-Effectiveness Analysis of the Grameen Bank of Bangladesh

Publication Date: 2003
Published by: Microfinance.com
Document Type: Journal Article

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The success story for Grameen Bank

This paper compares output with subsidy for Grameen Bank in a present-value framework to gauge the cost-effectiveness of the Bank. The paper does not measure the consumer surplus but infers Grameen to be a worth-while social investment.

It introduces microfinance, and the position of Grameen Bank in the sector. Then it explains the operational details of Grameen where it discusses:

• The membership;
• The loans;
• The forced savings.

Further, the paper explains the framework to measure social benefits. It discusses the following six aspects of these social benefits and mathematically explains them to provide a holistic understanding:

• Worth to users: Willingness of the users to pay;
• Cost to users: The sum of price cost and transaction cost;
• Depth: The social value of a surplus that accrues to a user;
• Breadth: The number of users;
• Length: The time through which microfinance is supplied;
• Scope: Types of services supplied.

As per the paper, the design of the framework to measure subsidy is also very effective to Grameen Bank’s present value framework.

The concluding section on cost effectiveness and discussion entails:

• The user surplus evidence;
• The policy implications for microfinance.

Finally, the paper infers that Grameen Bank could avoid the typical tragedies of development projects that led to its success.