A Framework for the Analysis of the Performance and Sustainability of Subsidized Microfinance Organizations with Application to BancoSol of Bolivia and to Grameen Bank of Bangladesh

Publication Date: Dec 1997
Published by: Microfinance.com
Document Type: Paper

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How much can you buy an MFI for?

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? This paper suggests a framework to help answer these questions with numbers.

It applies this framework to two of the best MFOs in the world, BancoSol in Bolivia and Grameen Bank in Bangladesh, both of which are judged 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. [author]