ABSTRACT
In the course of the analysis of Chapter 2 we made a distinction between two processes by which an ‘innovative’ credit institution might seek to make itself viable. It could seek to raise its profitability at a stroke by employing one of the range of devices described in that chapter (screening techniques, incentives to repay, and the laying-off of risks through insurance or equity participation); alternatively, it could seek to raise its profitability more gradually by progressively enlarging average loan size. There is a third approach, that of obtaining subsidy from a sponsor; although this should only be a short-term option and can easily be perverted into ‘rent-seeking’ (seeking subsidy to protect inefficiency rather than increase efficiency), it is an option which very few ‘innovative’ institutions have in practice been able to avoid, and for which we argued in Chapter 2 that a perfectly good theoretical case can in any case be made. In this chapter we examine the financial performance of our case-study institutions in relation to development finance institutions more generally, and the extent to which it was affected by the implementation of the three strategies described above.
