The Role of Subsidization and Organizational Status on Microfinance Borrower Repayment Rates

We use multilevel analysis to examine the effect of different types of external funding (donations vs. subsidies) on microfinance institutions' borrower repayment rates. Using information on 947 MFIs over a 10-year period we find that private funding is positively related to MFIs' abilities to screen borrowers and to monitor borrower repayment rates. We also find that MFIs that have a higher proportion of private donor funds to public subsidies have lower rates of portfolios at risk, fewer delinquent loans, and that their overall portfolios are less risky. Finally, we find that diverse organizational structures have a distinct impact on MFI loan portfolios.