Subsidy and Sustainability

Subsidy and Sustainability

п‚ў Self sustainable is the program free of subsidy.

п‚ў There are two ways make Microfinance program Self Sustainable.

1. Reduce Cost. (by granting few small loans and more large loans)

2. Increase rate of interest. (how poorest can be served)

Combination of (1) and (2) can make microfinance program self sustainable.

Microfinance Bulletin Conducted a Study in 2003

Regarding the Self Sustainability of different Microfinance programs

п‚ў In 2003 total 2572 Microfinance programs were working around the world.

п‚ў Out of these 2572 only 124 programs agreed to provide data.

п‚ў And only 66 programs were self sustainable, which makes 50% of 124.

п‚ў Majority of MFI were relaying on Subsidies.

Subsidies are of two types:

1. Direct Subsidy:

Grants: Grants are basically for training purposes.

2. Indirect subsidy:

i. Soft loans: Like 1% of interest over longer period of time or long term loans.

ii. Tax Holidays: Exemption from tax.

iii. Loan Guaranties:

iv. Soft Equity: This is provided by donor. (Equity is the start up (Business) capital)

An Analyses of Grameen Bank in terms of Subsidy:

п‚ў This study was conducted between 1985-1996 for eleven years.

п‚ў Between this time Total Profit Earned was = $1.5 million.

п‚ў Total Direct Subsidy = $ 16.4 million.

п‚ў Total Indirect Subsidy (Soft Loans) = $80.5 million. (On 1.8% of Rate of Interest and in market at that time interest rate abut 10%)

п‚ў Other Benefits = $47.3 million.

п‚ў So Total Subsidy = $47.3