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.


Issue Date:
1997
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/28323
PURL Identifier:
http://purl.umn.edu/28323
Total Pages:
51
Series Statement:
ESO 2361




 Record created 2017-04-01, last modified 2020-10-28

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