Question

1 .Explain the role of subsidies in the sustainability of mirofinance institutions in ghana.

2. discuss the benefits of deposit mobilisation  as a source of funding for microfinance institutions

Answer 1

PART 1-

Sustainability is the prerequisite for the success of a microfinance institution. For the sustainability of such institutions, the role of subsidies and donors’ funds are among the important aspects of new literature.

subsidies are normally beneficial when assuming a non-flat distribution of social weights, a credit demand that is elastic to interest rates, adverse selection effects and positive spillovers of microfinance credit to other lenders. Soliciting counterarguments, it can also be found the reasons against subsidies, including the most traditional one based on the ‘‘infant industry’’ critique, or the weakening effect of subsidies on the efficiency of microfinance institutions.

PART 2-

With Deposit mobilization, MFIs will be able to both grow without constraints from donors and governments and serve more poor people.

Microfinance experts claim that MFIs should aim to be free from subsidies roughly after seven year from their start. subsidies should be temporary and for start-up only until the MFI is able to tap private funding sources such as deposits.