The role of subsidies in microfinance: evidence from the Grameen Bank

The Grameen Bank of Bangladesh has been in the vanguard of the microfinance movement, showing the potential to alleviate poverty by providing credit t o poor households. Part of this success has been built on subsidies. In 199 6, for example, total subsidies evaluated at the economic opportunity cost of capital amounted to about US$26-30 million. The evidence helps to explai n why institutions like Grameen have not just sprung up on their own as pri vate commercial ventures, and it underscores the value of openly addressing the costs and benefits of subsidization. The paper also describes recent d ifficulties in maintaining high repayment rates. (C) 1999 Elsevier Science B.V. All lights reserved.