HOW TO MEASURE THE SUBSIDY RECEIVED BY A DEVELOPMENT FINANCE INSTITUTION

The most common indicator of the financial performance of development finance institutions, the Subsidy Dependence Index of Yaron (1992a), fails to recognize that subsidies are like equity injections whose use over time has a cost. Thus, the SDI underestimates subsidy. This paper gives a modified framework that counts all subsidies as equity injections. The paper also recasts the traditional SDI formula to clarify its definition and to show its invariance with respect to the form of subsidized resources. The modified framework is applied to the Grameen Bank in Bangladesh and to Caja los Andes, a microfinance organization in Bolivia. The underestimation of the traditional measure is material. The modified framework could be applied to any subsidized organization.Financial Economics,

WAYS DONORS CAN HELP THE EVOLUTION OF SUSTAINABLE MICROFINANCE ORGANIZATIONS

This paper suggests ways donors can help the evolution of sustainable microfinance organizations. Sustainability is good because it helps MFOs help more poor people than otherwise. Sustainability is hard because it requires balancing outreach and sustainability with prices the poor can afford yet high enough to cover the costs of the MFO. Donors are like genetic engineers whose job is to speed the evolution of sturdy MFOs. Technical assistance is the best way to tinker with MFOs.Financial Economics,

A Scoring Model of the Risk of Costly Arrears at a Microfinance Lender in Bolivia

Can scoring models help microfinance lenders in poor countries as much as they have helped credit-card lenders in rich countries? I model the probability that loans from a microlender in Bolivia had arrears of 15 days or more. Although arrears in microfinance depend on many factors difficult to include in statistical models, I find that inexpensive data does indeed have some predictive power. In microfinance, computer models will not replace loan officers, but they can flag the highest risks and act as a cross-check on human judgement.Scoring,risk management,credit risk,Bolivia,microfinance

META-RULES

Meta-rules, or rules for making rules, determine the costs of innovation and thus the pace of economic growth. Adapting rules to a changing economic environment through explicit, well-designed meta- rules makes economic growth quicker, less painful, and more certain than adapting rules through chance-based evolution.Research and Development/Tech Change/Emerging Technologies,

Evaluation and Microenterprise Programs

Microenterprise programs attempt to help poor people start or strengthen small businesses. Funding and political support has grown rapidly. Is microenterprise a good use of scarce development funds? Unfortunately, most evaluations have been case studies in what not to do. Because benefits and costs cannot be measured completely nor with perfect certainty, rigorous evaluations should support their necessarily subjective judgements with logic and explicit assumptions. The usefulness of an evaluation lies not in its (apparent) incontrovertibility but rather in its clarity of assumptions and in its openness to meaningful review and critique.Microenterprise,evaluation,welfare reform

Scoring Drop-Out at a Microlender in Bolivia

This paper presents a scoring model that predicts the risk of drop-out for borrowers at a microfinance lender in Bolivia. Drop-out risk was greater for women, manufacturers, newer borrowers, and those with more arrears. Out-of-sample tests suggest that scoring may help microfinance lenders to detect segments of their clientele (and even specific current clients) who are at-risk of drop-out.Scoring,credit risk,risk management,financial institutions,microfinance

APEX ORGANIZATIONS AND THE GROWTH OF MICROFINANCE IN BOLIVIA

Bolivia has the most advanced microfinance sector in Latin America and has been a model worldwide. Apex banks�banks that lend to banks�have not been responsible for this success. Apex banks can provide funds for retail microfinance organizations, and/or strengthen their organizational development. The existing apex has done little market development. It has provided some liquidity to microfinance organizations, but it has not played an indispensable role. The various apexes planned for the future are unneeded. In fact, they may disincentive deposit mobilization and create an unfair playing field and thus hurt microfinance in Bolivia.Agricultural Finance,

Women, Microfinance, and Savings: Lessons and Proposals

Microfinance—both credit and savings—has potential to improve the well- being of poor women in developing countries. This paper explores practical ways to achieve that potential. Based on lessons from informal saving mechanisms that women already use, the paper proposes two savings services designed to address the development issues that confront women. The proposals call for safe-deposit boxes and for matched savings accounts for health care or education.gender,development,savings incentives,Individual Development Accounts,sexism

Apex Organizations and the Growth of Microfinance in Bolivia

Bolivia has the most advanced microfinance sector in Latin America and has been a model worldwide. Apex organizations--second-tier wholesaling mechanisms that lend and offer non- financial assistance to retailing microfinance organizations--have not been responsible for this success. Former and current Bolivian apex organizations have engaged in little market development. Some have provided some liquidity to microfinance organizations, but they have not played an indispensable role in the development of the sector. Other mechanisms for the delivery of donor aid have been more effective in strengthening the best Bolivian microfinance organizations. There appears, therefore, to be no justification for various apex organizations planned for the future. These mechanisms may actually discourage deposit mobilization and if they would disburse funds to un-sustainable microfinance organizations, they may create an unfair playing field. This paper examines the role of apex organizations in the development of microfinance in Bolivia in two sections. The first one discusses demand and supply in the market for microfinance, the regulatory framework for the sector, and the nature of constraints on sustainable microfinance in this country. The second one evaluates the poor performance of a number of public-sector apex mechanisms and the predicament of one non-government apex organization. It also discusses options for the future.

Replicating Microfinance in the United States: Opportunities and Challenges

In developing countries, microfinance has been the darling of the development community, and in developed countries, microfinance fits well with Third Ways ideas. What are the challenges and opportunities for the attempt to replicate microfinance in the United States? This paper attempts to sketch some answers. Two factors color much of the discussion. First, compared to the Third World, the structure of the U.S. economy makes the hurdles to starting small-businesses much higher in the United States, and, second, the microenterprise sector itself is much smaller. The two aspects combine to make business training a far more important component in the United States than in the Third World. They also limit potential demand for microfinance and drive up costs. With costs well above revenues, U.S. programs are far from achieving financial self-sufficiency. With continued reliance on donors, U.S. programs will have to work toward justifying their place among other subsidized anti-poverty interventions, including education and community-building initiatives. This suggests that serious, regular cost-effectiveness analyses should become a much higher priority than it has been. Our second broad conclusion is that developing inexpensive saving services for the "unbanked" appears to have greater potential for cost-recovery in the United States, and this could open up opportunities for millions of poor households that are poorly served by existing for- profit and non-profit financial institutions. The current focus on microlending in the US echoes the initial focus on lending in Third World programs, but those programs are increasingly recognizing the importance of also developing facilities for safe, convenient savings.Replication, microfinance, microenterprise, outreach, sustainability, financial education, self-employment, welfare reform, affordable housing, community development