Out of the selected mfis, 18 are ngos, eight are microfinance banks, and two are nonbanking financial institutions. Research article efficiency of african microfinance institutions page 2 of 8 in a recent study, louis et al. Using a sample of more than 1,300 observations, our study suggests that outreach and efficiency of mfis are indeed negatively correlated. The higher level of competition between institutions has resulted in lower interest rates, lower costs, and higher efficiency, and has also opened a new market of financial services to the poor such as saving accounts and insurances. The microfinance network is a network of 2025 of the worlds largest microfinance institutions, spread across asia, africa, the middle east, europe and latin america.
Performance of the microfinance institutions in africa table 2 below shows the annual performance of the mfi sector in africa. Many of these institutions are working on the timeconsuming process of meeting requirements to. It may be possible that bankmicrofinance institutions may outperform the nongovernmental microfinance institutions in the long run. Important theories and models of microfinance economics essay. About one billion people globally live in households with per capita incomes of one dollar per day morduch j. Pdf social efficiency in microfinance institutions researchgate. Microfinance institutions have much lower rates of efficiency than commercial banks because on a. Social efficiency in microfinance institutions article pdf available in journal of the operational research society 601. However, bankmicrofinance institutions also outperform in the measure of efficiency under intermediation approach. Efficiency analysis of microfinance institutions in pakistan. However, bank microfinance institutions also outperform in the measure of efficiency under intermediation approach.
There are several professional networks of microfinance institutions, and organisations that support microfinance and financial inclusion. Financial performance of microfinance institutions i n the middle ground between wholly subsidized and regulated institutions, a growing number of microfinance institutions mfis have attained sustainability without yet achieving regulated status. Questionnaires and interviews were used to collect the data that was presented in tables, graphs and numbers to show the role played by microfinance in the. Microfinance is a term used to describe financial services, such as loans, savings, insurance and fund transfers to entrepreneurs, small businesses and individuals who lack access to traditional banking services. The study revealed that nongovernmental microfinance institutions are the most efficient ones under production approach, whereas bank microfinance institutions turned most efficient under intermediation approach. Today, more than 400 sustainable institutions report to the microfinance information exchange mix, a leading source for market data. There are remaining gaps for the efficiency study in microfinance which need to be filled, considering the importance of microfinance institutions and their roles to the economy. To find out products microfinance institutions employ to enable the youth access credit and accumulate savings.
Microfinance includes microcredit, the provision of small loans to poor clients. Microfinance institutions and public policy wp02159 created date. This guide of best practices of microfinance institutions active in remittances is based on the experience of mfis that are welladvanced in remittance products. The paper goes beyond simple financial ratios using a data envelopment analysis dea approach to measure the efficiency of mfis. Game theory of microfinance the microfinance games theory also supports the idea of group lending among micro finance institutions. Efficiency analysis of microfinance institutions in asean. Mahinda wijesiri1, jacob yaron2, michele meoli3 abstract using a twostage dea bootstrapped metafrontier approach, we investigate the effects of age and size on efficiency estimates of microfinance institutions mfis. Mohammad yunus is considered a pioneer of modern microfinance. Microfinance institutions and efficiency abstract microfinance institutions mfis are special financial institutions. Report on the performance of microfinance institutions. For the analysis of financial efficiency, we rely on existing literature for traditional financial. Pdf the social efficiency of microfinance institutions in sri lanka. Microfinance institutions despite their success over the past few years, have only grown to reach a fraction of the estimated underlying demand, extensive study is yet to be done on factors affecting their growth.
Technical efficiency and its determinants in microfinance. Game theory of microfinance the microfinance games theory also supports the idea of group. Dec 20, 2007 this sortable table gives the rank out of 641 for the top institutions according to scale, which is based on the size of their gross loan portfolio. Popular opinion could suggest that excessive efforts to control loan losses have contributed to the high operating costs. Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. Integrating financial and non financial metrics article pdf available february 20 with 11,252 reads how we measure reads. While efficiency studies can be done using either parametric or nonparametric analysis, most.
Africa, asia, data envelopment analysis, efficiency, latin america, microfinance institutions. Microfinance banks perhaps are not appropriate financial institutions to extend microcredit to poorer community member and to achieve the goal of women. I am particularly pleased with the explicit focus on consumers and their needsthis, together with the onset of technologybased delivery models, has been the most important shift in the microfinance field over the past 15 years. Pdf the social efficiency of microfinance institutions. Pdf microfinance institutions mfis are a special case in the financial world. In order to do this, we formulate a cost function, apply the socalled stochastic frontier analysis sfa to determine a cost frontier, and determine which factors may explain the distance from the best practice cost function i.
It may be possible that bank microfinance institutions may outperform the nongovernmental microfinance institutions. Pdf this paper investigates the financial and social efficiency of microfinance institutions mfis in bosnia and herzegovina, as well as the. However, virtually all noncommercial funders of microfinance see finan. The role microfinance in economic empowerment of the. On the other hand, productivity and efficiency measures are less comprehensive indicators of performance than those of profitability. Assessing the efficiency and outreach of microfinance. Institutions using a seemingly unrelated regression. This paper examines the relationship between nonperforming loans and efficiency of microfinance institutions mfis. A microfinance institution provides account services to smallbalance accounts that would not normally be accepted by traditional banks, and offers transaction services for amounts that may be smaller than the average transaction fees charged by mainstream financial institutions. Provided that social investors unlike their counterparts in traditional, commercial markets, do not require higher financial returns and are instead motivated by mere philanthropic drive, however, it is the institutions programs that exhibit their effectiveness and efficiency in achieving their mission and demonstrate little drift that attract.
The performance highlights are based on the data from 25 mfis from africa. Faculty of economics and business, university of groningen, po box 800, 9700 av. Microfinance institutions and efficiency sciencedirect. Factors affecting the growth of microfinance institutions. Pdf performance of microfinance institutions in tanzania. Core principles for microfinance the poor needs access to appropriate financial services the poor has the capability to repay loans, pay the real cost of loans and generate savings microfinance is an effective tool for poverty alleviation microfinance institutions must aim to provide financial services to an. To establish the extent to which microfinance institutions have succeeded in poverty eradication among the youth.
If an mfi is not financially efficient it will not survive long, but we soon realised that studying financial efficiency is not enough. This chapter discusses the research method that was applied in carrying out the study. To investigate how microfinance increases entrepreneurial competence and culture. The industry as a whole is growing fast, adding percent. This article analyzes the determinants for social and economic efficiency in microfinance. Microfinance institutions mfis play a crucial role in the financial world and they have a double financial and social role and. Microfinance collectively refers to the supply of loans, savings accounts, and other basic financial services like insurance, to the poor. The population of this research comprises of all nonprofit microfinance institutions providing services in pakistan. Performance between november 2001 and november 2002. Request pdf microfinance institutions and efficiency microfinance institutions mfis are special financial institutions. A dea approach to microfinance institutions efficiency motivation microfinance institutions mfis are not a rarity any more, but are becoming firstclass members of financial and banking systems in developing countries.
Pdf the social and financial efficiency of microfinance institutions. Loans outstanding of selected banking institutions by maturity table 38. In this paper, we try to measure the efficiency of mfis in relation to financial and social outputs using data envelopment analysis. Microfinance institutions and public policy wp02159.
It may be possible that bankmicrofinance institutions may outperform the nongovernmental microfinance institutions. The examples in this publication come directly from microfinance institutions or banks providing microfinance services. It also provides a framework which transcends differences in geography, gnp and wage bases by which microfinance institutions can analyze their mission, strategy, organizational structure. Outreach and efficiency of microfinance institutions.
The new microfinance handbook fills a critical gap in the current literature on financial inclusion. In particular, we look at the cost efficiency of microfinance institutions. Nonperforming loans and efficiency of microfinance. The results suggest that microfinance institutions in vietnam are relatively more efficient that their counterparts with efficiency levels of 87. The author wishes to acknowledge the great support and contribution of her colleagues in building the womens world banking marketing for microfinance. Their performance has been traditionally measured by means of financial ratios. The objective of the study has been to estimate the efficiency of microfinance institutions in pakistan. Pdf social efficiency in microfinance institutions. Performance of microfinance institutions in achieving the poverty outreach and financial sustainability.
Krishanthi mallika 1,2,a, and hongzhong zhao 3,b 1,3 school of economics, wuhan university of technology, wuhan, p. They have a double financial and social role and need to be. For the analysis of financial efficiency, we rely on existing literature for traditional. This paper investigates the financial and social efficiency of microfinance institutions mfis in bosnia and. The best practices guide can be used by management of mfis as selfstudy material or as a basis for training material for workshops or classroom courses for mfis. Pdf social efficiency in microfinance institutions begona.
This study examines the cost efficiency of 39 microfinance institutions across africa, asia and the latin america using nonparametric data envelopment analysis. Microfinance institutions mfis are special financial institutions. Financial services and markets of various financial institutions table 311. Microfinance institutions mfis are a special case in the financial world. The remainder of the study is organised as follows. They have both a social nature and a forprofit nature. Secondary data for the time period of 17 years, from 20002017 is collected from the online database mix market, 2017. This result reflects that banks are the financial intermediaries and have access to local capital market.
Social and financial efficiency of microfinance institutions in. The argument to support microfinance as an effective tool for poverty alleviation by the pioneer of grameen bank is as follows. Nonperforming loans and efficiency of microfinance institutions. The role microfinance in economic empowerment of the youth. Performance indicators for microfinance institutions. In certain cases, raw data has been altered to preserve confidentiality.
Performance of microfinance institutions in tanzania. The microfinance has evolved due to the efforts of committed individuals and financial agencies to promote selfemployment and contribute to poverty alleviation and provision of social security. Their growing parameters are outstanding, both in number of firms and in number of clients. Minimum capitalization of nonbank financial intermediaries table 310. Do african microfinance institutions need efficiency. Provided that social investors unlike their counterparts in traditional, commercial markets, do not require higher financial returns and are instead motivated by mere philanthropic drive, however, it is the institutionsprograms that exhibit their effectiveness and efficiency in achieving their mission and demonstrate little drift that attract. Efficiency, microfinance institutions, bosnia and herzegovina. Efficiency provides microfinance management, boards of directors, investors, donors and regulators with a framework for measuring and analyzing efficiency. Abstractmicrofinance institutions mfis are a special case in the financial world. Our findings show nongovernmental microfinance institutions particularly. The microfinance industry is struggling with very high operating costs while default rates are quite low. The researchers used selforganising map methodology to study 650 mfis, and the results showed a positive relationship between mfi heterogeneity and social efficiency.
A dea approach to microfinance institutions efficiency cermi. In the last decade the focus of this social view has been linked, for example, to specific types of financial institutions, such as microfinance institutions 1617 18. This sortable table gives the rank out of 641 for the top institutions according to scale, which is based on the size of their gross loan portfolio. The study revealed that nongovernmental microfinance institutions are the most efficient ones under production approach, whereas bankmicrofinance institutions turned most efficient under intermediation approach. The micro finance institutions development and regulation bill, 2012 a bill to provide for development and regulation of the micro finance institutions for the purpose of facilitating access to credit, thrift and other micro finance services to the rural and urban poor and certain disadvantaged sections of the people and promoting financial. Microfinance institutions and efficiency request pdf. Loans outstanding of selected banking institutions by industry table 39. However, one potential ingredient of their success that has not been su. Commercialisation and efficiency of microfinance institutions. The study was carried out using both quantitative and qualitative methods. Social efficiency in microfinance institutions springerlink.
A dea approach to microfinance institutions efficiency. They have a double financial and social role and need to be efficient at both. The social efficiency of microfinance institutions in sri lanka j. Contribution of microfinance to economic growth beh. For the analysis of financial efficiency, we rely on existing literature for traditional financial institutions. The microfinance services are delivered by specialized microfinance institutions mfis that can be both bank and nonbank type. Nov 28, 2007 microfinance institutions mfis are a special case in the financial world. Measuring results of microfinance instituions performanceportfolio quality, financial sustainability, and efficiencythat occupy most of the discussion in this guide. He experimented with making small loans, which he funded himself. Oct 17, 2009 this study examines the cost efficiency of 39 microfinance institutions across africa, asia and the latin america using nonparametric data envelopment analysis. University of groningen outreach and efficiency of.