Development Finance Institutions: Measuring their subsidy

The term development finance institutions, or DFIs, refers to public or private financial intermediaries that use resources from government or donors to improve social welfare. As funds for development become increasingly scarce, measuring the social cost of public DFIs becomes more important. If the social benefit of a DFI exceeds its social cost, then it can be said that the public funds are well spent. Development Finance Institutions: Measuring Their Subsidy presents two means for measuring social cost: the Subsidy Dependence Index and the Net Present Cost to Society. Both measures advance on common financial ratios because they shift the paradigm from reported (accounting) costs, - many of which are routinely subsidized - to opportunity (economic) costs, leading to a more efficient determination of the sustainability of a DFI. Sustainability improves social welfare if the consequent long-term increase in the length, breadth, scope, and quality of outreach compensates for the short-term increase in costs shifted to the target group. As presented in this book, use of the Subsidy Dependence Index and the Net Present Cost to Society to measure social cost constitutes a first step toward the better informed use of public funds.