A Cost-Effectiveness Analysis of the Grameen Bank of Bangladesh

In the next ten years, advocates of microfinance organizations (MFOs) will seek more than $20 billion to provide small loans to 100 million of the poorest families worldwide. In the United States, the newest federal budget proposes a 159-percent increase in the about $200 million spent per year on domestic microfinance. Most of the excitement for the promise of microfinance in the United States has been sparked by reports of the success of the Grameen Bank of Bangladesh. Was Grameen a good use of scarce funds earmarked to help the poor? For the time frame of 1983- 96, I find that the present worth of benefits of Grameen exceeded the present worth of costs ($16.4 million) as long as the average member got more than $8 worth of surplus per year of membership. This result is robust to assumptions about opportunity costs. Given the documented impacts of Grameen, my guess is that benefits did in fact exceed costs. Grameen seems to have been a good way to help the poor. Still, one good MFO does not a microfinance crusade make, and most MFOs in the United States and worldwide do not perform as well as Grameen. CEA is an inexpensive tool to help to inform the judgement of whether a given MFO is a good way to help the poor.

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