# **Table 22 Approximate PHBK Program Costs in Comparison to Program Outputs: Fiscal 1990/91 to Fiscal 1995/96**

||Total|Cost**Per Pro**|**gram Outpu**|**t**t|||
|---|---|---|---|---|---|---|
||1**l991,/91**|<br>1991/92|**1992/93**|1993/94|**_1994195_**|1995/96|
|Annual cost (US$)|3.687.167|3.994.965|4.253.810|4.647.182|5.164,454|5.231.503|
|Cost percent of annual loan<br>volume|357|227|304|292|168|95|
|Cost per group credit (US$)|8.821|7.412|<br>11.654|<br>6.012|<br>3.699|<br>1.785|
|Cost per new group credit|14.574|<br>16.8S6|<br>16,682|<br>10.169|<br>6,134|<br>2.103|
|<br>Ca|sh**OutlavC **|**ostPcr Pro**|**ram Out)u**|**t(USSY**<br>|<br>_||
||1 990/91|1991/92|1992/93|1993/94|1994/95|1995/96|
|Annual cash cost (US$)|954.434|1.124.984|1.205,954|1.379.258|1.697,107|1.589.218|
|Cost percent of annual loain<br>volume|92|64|86|87|55|29|
|Cost per group credit (US$)|2.283|2.087|3.304|1.784|1.216|542|
|Cost per new group credit<br>(US$)|3.772<br>I|4.747|4.729|3.018|2.016|639|

a/ Costs exclude BI in-kind expenditures on thc program.

The costs detailed above effectively translate into very large subsidies for borrowers. To gauge the magnitude of this subsidy, this section provides rough estimates of the percent increase in the interest rate that banks would have to charge their PHBK clients if the banks were to maintain their current level of profits while fullv funding this program. This percent increase in the required interest rate is a lower-bound estimate of the Subsidy Dependency Index (SDI).<sup>46</sup> As Table 23 indicates, the program's subsidy dependency index follows trends in program costs. In fiscal 1990/9 1, banks would have had to increase their interest rate by approximately 628 percent to pay for the full cost of the program. Over the following 5 years. this figure declined sharply, and stood at 158 percent in fiscal 1995/96. While a 158 percent increase in the interest rate is still very high, it is impressive that this figure declined by almost one-half from fiscal 1994/95 to 1995/96 alone. To fund direct program costs, banks would have had to increase their interest rate

- **46** SDI figures presented here are only rough estimates of actual figures because the author was required to make a number of significant estimations and assumptions. Because this program operates through private banks, we assume that the total program subsidy is equal to the cost of running the PHBK program, that is. that banks are not subsidizing these loans in other wvays. The SDI calculation also requires an estimate of the total interest collected annually on program loans. This information is not available. An estimate for this figure vas calculated based on the average interest rate charged on loans, the program's annual average outstanding loan volume, and the program's annual arrears rate. The average interest rate charged on loans is assumed to be 107 percent per year on a declining balance basis including all interest charges, fees, and forced savings requirements.

Further. the SDI is calculated assuming a market return for equity holders. Since information on participating banks' current returns to equity holders was not available. we assume here that these rates are acceptable at their current level. If banks' actual returns on their loans under this program are below the market level, then the figures presented here underestimate the actual SDI.

See Annex 7 for a description of how the SDI is calculated.

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