Subsidies to microfinance institutions: how do they affect cost efficiency and mission drift?

The costs and benefits of subsidized microfinance are still controversial. We utilize a cost-function estimation approach that accounts for the double bottom line (social financial) institutions (MFIs) to evaluate how subsidies affect both cost efficiency risk mission drift. control endogenous self-selection into business models credit-only versus credit-plus-deposit. Our results suggest MFIs supply loans collect deposits need no be cost-efficient. In addition, these associated with an increase in deposit size, which might hurt most disadvantaged depositors. sum, combining funds from donors increases drift, can therefore socially undesirable.