Sub-theme 2.4. Subsidies and performance of social enterprises

Sub-theme 2.4. Subsidies and performance of social enterprises

The question whether one should preferably offer credit (loans) or grants to the poor remains unresolved. The advocates of grant giving argue that institutions targeting very poor households cannot afford to do that without subsidies. Their opponents argue that the absence of repayment obligation takes away the incentives to invest the money in a profitable, economically viable activity. The grant is conceived as an unconditional gift whereas the loan is a contract with binding obligations. The middle position often advocated by developmental nonprofit organizations active in microfinance argues that loans should be provided but at under-market conditions (notably, lower interest rates and no collateral, also a type of non-market debt). We assume that the three kinds of subsidies have a similar impact.

We aim to proceed to the enlargement of an already existing database created by Hudon and Tra├ža (2011) by completing it with MFIs financial statements. This database is to make it possible to assess how MFIs fulfill the standard criteria of social and financial performance, and how subsidies influence this fulfillment. This exercise on microfinance aims to feed the theoretical development on social enterprise finance in general, and more particularly on the impact of funding sources on organizational performance.