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Abdul is manager of the Totally Rural MFI (TRuMFI). He has a problem. He is worried about the future of his institution, about his colleagues’ jobs, and indeed his own. He has been managing TRuMFI, quite successfully as he thought, since 2004. Now it is 31 st December 2009, and the donors who had started it have just left following an evaluation mission.

They have told Abdul that although they have financed TRuMFI and covered its costs ever since it started, ‘sustainability’ is now a must. If he is not able to show convincingly by the end of January that TRuMFI will be able to cover all its costs from its own income within two years, they will stop supporting it.

He calls his friend Sofia, who works for a local development agency, to have a chat about it. She says she has met this kind of problem before because, although microfinance is widely claimed to be ‘sustainable’, and even ‘profitable’, most MFIs are started with the aid of grants or other subsidies and generally continue to benefit from subsidies of various kinds. She says that it is often hard to identify and quantify a subsidy, because subsidies are all around us, and can take the form of gifts of equipment, free training, work by volunteers and other things that we hardly notice.

Abdul, in thinking about the subsidies he has been receiving from his donors, wonders how on earth he can identify them, and count them, as a preliminary step on the way to finding methods of substituting for them. Sofia says that it is simple to calculate the level of direct monetary subsidy that an institution receives and offers to explain it to Abdul later that day.