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cost benefit analysis

The microfinance business model: Enduring subsidy and modest profit

Bob Cull's picture

Microfinance institutions aim to serve customers ill-served by traditional commercial banks and thus the associated business model is challenging by definition. And yet the industry has achieved impressive scale reaching 211  million customers globally in 2013. Paradoxically, recent evidence suggests that the benefits of microcredit to borrowers may be modest. For example, six prominent randomized controlled trials found small impacts of access to microcredit on the incomes and consumption levels of marginal borrowers, though the studies found some “potentially important” (though modest) impacts on “occupational choice, business scale, consumption choice, female decision power, and improved risk management.” (Banerjee et al., 2015, p. 14).

Getting more Bank for the buck

Jon Strand's picture

Whatever happened to the idea of getting the most ‘bang for the buck’? No, we don’t mean it in the literal sense of more firepower, as when the Eisenhower administration introduced the term in the 50’s. Nor do we refer to a derivative from the Cannabis plant, contrary to what an Indian colleague adamantly claimed was the origin of the term. We mean it in the unglamorous but important sense of getting the most benefit from the money and efforts spent by the World Bank, on its projects and other client support. Why is this imperative? Every dollar badly spent is a life that wasn’t saved; a child that didn’t receive education; a climate risk that wasn’t properly addressed. Such shortcomings make the Bank’s main targets, poverty eradication and inclusive growth, more difficult to attain.