A Cost-Effectiveness Analysis of the Grameen Bank of Bangladesh

Reports of the feats of the Grameen Bank of Bangladesh have sparked rapid growth in budgets devoted to microfinance as a tool to reduce poverty in both rich and poor countries. But has Grameen been a cost-effective use of scarce funds earmarked for development? To answer this, I compare outputs to social costs in a present-value framework adapted to microfinance organizations. For a social investor in the time frame 1983-97, the cost of a person-year of membership in Grameen was about $20. Likewise, the cost of a dollar-year of borrowed purchasing power was about $0.22. Although I do not measure social benefits, most evidence suggests that benefits exceed these estimates of costs. Grameen—if not necessarily other microfinance organizations—was probably a good social investment.

Project: Microfinance