Publication: Development Finance Institutions : Measuring Their Subsidy
Date
2001-10
ISSN
Published
2001-10
Author(s)
Schreiner, Mark
Yaron, Jacob
Abstract
The term "development finance
institutions" (DFI) encompasses no only government
development banks, but also nongovernmental micro-finance
organizations, that match grants to attempt to promote
community development, decentralization of power, and local
empowerment. Measures of the social cost of DFIs that
receive public funds, help to check whether DFIs are good
uses of public funds, i.e., if the social benefit of a DFI
exceeds the social cost, then public funds are indeed
well-spent, further improving social welfare. This report
describes the measurement of costs but not of benefits; but
even without knowledge of benefits, knowledge of costs can
help to adequately spend funds. Two measures of social cost
are presented: first, the Subsidy Dependence Index (SDI) -
the ratio of subsidy received to revenue from loans; and,
subsidy is the social cost of the public funds used to run a
DFI - which does not discount flows, rather it works in
short time frames, or when the rate of time preference is
low; second, the Net Present Cost to Society (NPCs) - like
standard present-value measures, it discounts cash flows,
and works in any time frame. Both SDI and NPCs are tools, to
help establish benchmarks, chart trends, and compare a DFI
with identical clients, and services. It is stipulated that
measurement of the social cost of public DFIs matters
because funds earmarked for development are scarce, while
subsidies for DFIs could be adequate, provided social
welfare improves in a broader scale.
Citation
“Schreiner, Mark; Yaron, Jacob. 2001. Development Finance Institutions : Measuring Their Subsidy. Directions in Development;. © Washington, DC: World Bank. http://openknowledge.worldbank.org/entities/publication/362d292b-6714-539f-b902-9e712bc1b9ad License: CC BY 3.0 IGO.”