Impact of Competition on Efficiency of Microfinance Institutions: Cross Country Comparison of India and Bangladesh

2021 ◽  
pp. 097300522110052
Author(s):  
Joyeeta Deb ◽  
Ram Pratap Sinha
Keyword(s):  
Information Exchange ◽  
Data Envelopment ◽  
Bottom Of The Pyramid ◽  
Microfinance Institutions ◽  
Tobit Regression ◽  
Social Efficiency ◽  
Trade Off ◽  
Social Objective ◽  
Efficient Level ◽  
Potential Impact

Increased competition coupled with commercialisation in the Indian microfinance sector has brought about many major transformations. From an impact-driven development programme, microfinance institutions (MFIs) today emerged as commercially oriented profit-making entities. In addition to bringing their commercial and social objectives into balance, MFIs today are striving for efficient level of operation. Efficiency in the level of operation of MFIs allows them to remain competitive and attain financial sustainability. However, it is also imperative for MFIs to remain socially committed towards the ultimate mission of reaching the poorest at the bottom of the pyramid. Hence, it is of research interest to see the trade-off between MFIs’ social objective of spreading outreach and at the same time remaining financially sustainable. Against this backdrop, this article is devoted to study the potential impact of competition and commercialisation on efficiency of MFIs in India and Bangladesh. The study is carried over 75 MFIs altogether over the period of 8 years from 2009 to 2016. The data have been collected from microfinance information exchange database. Efficiency is measured through technical efficiency (TE) scores as estimated under data envelopment analysis. In order to establish the association between competitions, which is estimated by the Herfindahl–Hirschman index (HHI), tobit regression is used. The study evidenced increasing level of competition in the sector over the years, but it is more pronounced in India as against Bangladesh. In order to analyse the trade-off, TE scores are separately estimated under both financial and social measures. TE score is found to be higher in case of social measures of efficiency as against financial efficiency. Further, under both the measures, competition is found to be having a significant impact on both financial and social efficiency.

Social and Financial Efficiency: A Study of Indian Microfinance Institutions

2020 ◽  
Vol 10 (1) ◽  
pp. 31-43
Author(s):  
Swati Chauhan
Keyword(s):  
Financial Services ◽  
Information Exchange ◽  
Empirical Studies ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Tobit Regression ◽  
Social Efficiency ◽  
Financial Efficiency ◽  
The Government ◽  
Using Data

Microfinance institutions (MFIs) provides savings, credit, insurance and remittance facilities to more impoverished people without any collateral. MFIs have twin goals: social outreach and financial sustainability. Outreach refers to how many people are served by MFIs while the capacity of MFIs to serve longer is financial sustainability. The social and financial performance of MFIs is the most debatable issue in the Indian microfinance industry. Social efficiency indicates MFIs’ willingness to support a higher number of poorer consumers while financial efficiency indicates how long financial services can be offered to the poor by institutions. The success of these organizations is very critical for the continuity of funding support for donor agencies and the government. Using data envelopment analysis (DEA) techniques this paper calculates the efficiency of Indian NGO–MFIs. The research also uses Tobit regression to estimate the factors of the efficiency of MFIs. The data is taken from the Microfinance Information Exchange for the period 2009 to 2015. Results indicate that NGO–MFIs are financially more efficient than social ones. Regression findings show that the critical variable for the financial and social efficiency of NGO–MFIs is operational self-sufficiency (OSS). Very few empirical studies are available in the Indian context that discuss the efficiency of Indian NGO–MFIs. The present paper provides standards for performance measures of NGO–MFIs operating in India to assist in improving the performance and growth of microfinance firms.

scholarly journals Alleviating Poverty through Islamic Microfinance: Outreach and Efficiency (Study on BMT and Islamic Cooperatives in Indonesia)

2020 ◽  
Vol 16 ◽  
pp. 1362-1376
Author(s):  
Purwanto Purwanto ◽  
Ina Primiana ◽  
Dian Masyita ◽  
Erie Febrian
Keyword(s):  
Coefficient Of Determination ◽  
Data Envelopment ◽  
Strong Positive Correlation ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Qualitative Approaches ◽  
The Social ◽  
Dependent Variables ◽  
Islamic Microfinance ◽  
The Impact

The involvement of Islamic Microfinance Institutions (IMFI) in building the national economy is paramount to help the poor. However, provision of access and services to lower-level households can potentially conflict with the sustainability of the institutions. This study analyses the social outreach factors that determine financial and social efficiencies. To reach the set goal and solve this issue, we used mixed methodology combining quantitative (statistical instruments, such as Data Envelopment Analysis (DEA) and multivariate analysis) and qualitative approaches (interviews to clarify or deepen the existing information). The assessment of the dependent variables is influenced by proxies of depth, breadth, length, scope, and cost. The results showed that the average loan instalments and the number of offices and branches significantly influence financial and social efficiency. The age of the institution only has an effect on financial efficiency. Simultaneously, profit orientation, the amount and type of financing and the amount and type of savings only have a high impact on social efficiency, whereas the impact of fund collection and cost per borrower is insignificant. There is a strong positive correlation between the two dependent variables. The influence of independent variables on financial and social efficiency is significant with the coefficient of determination 23.1274 % and 53.2941 %, respectively.

scholarly journals Efficiency Analysis of Microfinance Institutions in Bangladesh: Does Regulation Matter?

2020 ◽  
Vol 5 (2) ◽  
Author(s):  
Farhana Ferdousi
Keyword(s):  
Efficiency Analysis ◽  
Malmquist Productivity Index ◽  
Productivity Index ◽  
Data Envelopment ◽  
Microfinance Institutions ◽  
Tobit Regression ◽  
Productivity Increase ◽  
Before And After ◽  
Tools And Techniques ◽  
Productive Growth

The aim of this study is to measure efficiency of various Microfinance Institutions (MFIs) in Bangladesh before and after introducing Microcredit Regulatory Authority (MRA) in order to capture the immediate impact of regulation. Data Envelopment Analysis (DEA) and Malmquist Productivity index technique have been used for this study. Findings reveal that 35% firms’ average productivity increase sharply after enacting microfinance regulation. Seven firms have been graduated from the inefficiency level to efficiency level. However, most of the firms among the increased efficiency list are comparatively young in terms of starting their microfinance operations. Result of Tobit regression does not find any significant relationship between efficiency and regulation. Due to regulation, only number of outreach increases but to ensure more productive growth, MRA needs to be more proactive in strengthening policy environment and educating MFIs to be better equipped with sound financial and managerial tools and techniques.

Depth of Outreach and Financial Sustainability of Microfinance Institutions

2020 ◽  
pp. 204-218 ◽  
Author(s):  
Mohammad Zainuddin ◽  
Ida Md. Yasin ◽  
Masnun Mahi ◽  
Shabiha Akter
Keyword(s):  
Research Question ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Donor Funding ◽  
Trade Off ◽  
The Poor ◽  
Social Objective

Microfinance institutions tend to rely on donations and subsidies to achieve their social objective of outreach to the poor. Over the years, the industry has experienced tremendous growth, with donor funding pouring in. The question, however, arises whether microfinance firms can operate and continue to serve the poor clients on cost-covering basis without ongoing subsidies. There has been a growing tendency in the industry, which was traditionally a domain of not-for-profits, to embrace commercialization and pursue profitability to ensure self-sustainability. This chapter makes an empirical revisit to an inconclusive research question: Is there a trade-off between microfinance outreach and sustainability? Based on data for 1,232 microfinance firms from 43 countries, the study confirms the existence of trade-off between the two bottom lines of microfinance.

scholarly journals Unboxing the black box on the dimensions of social globalisation and the efficiency of microfinance institutions in Asia

2021 ◽  
Vol 12 (3) ◽  
pp. 557-592
Author(s):  
Hafezali Iqbal Hussain ◽  
Katarzyna Szczepańska-Woszczyna ◽  
Fakarudin Kamarudin ◽  
Nazratul Aina Mohamad Anwar ◽  
Mohd Haizam Mohd Saudi
Keyword(s):  
Value Added ◽  
Least Square ◽  
Data Envelopment ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Data Set ◽  
Positive Correlation ◽  
The Social ◽  
Potential Factors ◽  
Scientific Practical

Research background: Microfinance institutions (MFIs) play an important role in alleviating poverty. Thus, MFIs should be efficient in order to ensure that their objectives on social welfare and financial performance can be achieved by identifying the potential determinants, specifically on social globalisation. Purpose of the article: This paper examines the impacts of the social globalisation dimensions of interpersonal, informational, and cultural globalisations on the financial and social efficiency of MFIs. Methods: The data period covered the years 2011?2018; the data set consists of 176 MFIs from six Asian countries. The Data Envelopment Analysis (DEA) approach was employed to examine the MFIs? efficiency levels. Generalised Least Square (GLS) regressions were used to analyse the impacts of social globalisation and other determinants towards the efficiency of MFIs. Findings and value added: Interpersonal globalisation had a significantly negative correlation with social efficiency, suggesting that increasing the number of foreigners in management intrudes on local managers? decisions. Informational globalisation had a significantly positive correlation with financial and social efficiency, which signifies that more information produces monopolistic profits in this industry. Finally, cultural globalisation had a positive correlation with social efficiency, demonstrating that a global trading culture improves the abilities and technological skills for labour development and enhances MFIs? social efficiency. In general, the Cobb Douglas Production theory explained the understanding of the impacts social globalisation has on MFI efficiency. Furthermore, the findings from this study could provide important scientific, practical gap and contribute new insights and implications to various parties. Firstly, governments or policymakers can establish effective national policies and strategies. Secondly, this study could support investors in monitoring and understanding the performance of MFIs. Finally, the research could fill scholarly gaps and uncover more potential factors that influence the efficiency of MFIs.

scholarly journals The social and financial efficiency of microfinance institutions: the case of Bosnia and Herzegovina

2017 ◽  
Vol 12 (2) ◽  
pp. 85-101 ◽  
Author(s):  
Velid Efendic ◽  
Nejra Hadziahmetovic
Keyword(s):  
Bosnia And Herzegovina ◽  
Recovery Period ◽  
Secondary Data ◽  
Data Envelopment ◽  
Microfinance Institutions ◽  
Social Dimensions ◽  
Social Efficiency ◽  
Financial Efficiency ◽  
The Social ◽  
Post War

Abstract This paper investigates the financial and social efficiency of microfinance institutions (“MFIs”) in Bosnia and Herzegovina, as well as the effects of the latest crisis on these “two-dimensional” efficiencies. Specifically, we analyze the efficiency of MFIs in Bosnia and Herzegovina (BiH) as a good case of a European, post-war country in transition with a developed micro-financial sector. The efficiency analysis relies on secondary data collected and investigated through Data Envelopment Analysis (DEA). The study covers data for the period commencing in 2008 and ending in 2015. In our empirical investigation, we find a suboptimal level of both financial and social efficiency among MFIs in BiH. However, financial efficiency is significantly higher than social efficiency, while small-sized MFIs over perform larger ones in both the financial and social dimensions. As a result of the crisis, MFIs recorded a declining trend in efficiency up to 2010, after which they began to show signs of slow recovery. However, our results suggest that MFIs prioritized financial over social goals in recovery period following the crisis.

Social Performance of Microfinance Institutions (MFIs): Does Existing Practice Imply a Social Objective?

2013 ◽  
Vol 2 (2) ◽  
pp. 173 ◽  
Author(s):  
Sujani Thrikawala ◽  
Stuart Locke ◽  
Krishna Reddy
Keyword(s):  
Information Exchange ◽  
Social Performance ◽  
Empirical Studies ◽  
Research Work ◽  
Future Research ◽  
Microfinance Institutions ◽  
Performance Measurements ◽  
Social Objective ◽  
Development Goals ◽  
Traditional Performance

Many microfinance institutions (MFIs) are currently drifting away from their original mission of alleviating poverty. The objective of this article is to identify and update significant social performance (SP) for micro-finance institutions (MFIs) by viewing social performance measures as a way to address the development of MFIs. Unlike traditional performance measurements, social performance measurements are more allied with the organisation’s social and development goals. This study has therefore reviewed prior empirical studies and consultancy reports dealing with poverty alleviation to determine important social performance measurements for MFIs to achieve their social goals. Further, this study scrutinises 415 MFIs that have reported their social performance in the Microfinance Information Exchange (MIX) database in 2008 and 2009. The findings have revealed that from 2008 to 2009 the number of MFIs reporting social performance increased by 72 per cent; 80 per cent of them are Non-governmental Organisations (NGOs) and Non-banking Financial Institutions (NFBIs). This study therefore provides direction for future research in performance assessment, balancing social and financial objectives in the microfinance industry. It is also a step in conducting more research and recommending regulation of the social performance of MFIs that will require them to engage in more empirical research work using micro-econometrics techniques in the future to support the available conceptual literature.

Financial and social efficiency in the Yemen microfinance institutions

2019 ◽  
Vol 12 (3) ◽  
pp. 322-345 ◽  
Author(s):  
Mohammed Ali Al-Awlaqi ◽  
Ammar Mohamed Aamer
Keyword(s):  
Rural Areas ◽  
The Body ◽  
Data Envelopment ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Content Type ◽  
Governmental Organizations ◽  
Non Governmental Organizations ◽  
Dea Analysis ◽  
First Time

Purpose The purpose of this paper is to discover the most important productivity determinants of Yemeni microfinance institutions. In addition, this study tests the most appropriate tool to measure productivity in such unique industry. Design/methodology/approach The authors applied data envelopment analysis (DEA) with the variable return to scale after testing the technology return to scale assumption. Then, they used DEA with bootstrapping technique to overcome the borne biasness in the conventional DEA analysis. Finally, the authors presented the Hicks–Moorsteen (total factor productivity [TFP]) as the most suitable tool for the technology presented in this study. Findings In this paper, the authors found a prolonged deterioration in the productivity scores of microfinance institutions in Yemen. This study highlights the importance of operating in rural areas to improve micro finance institutions’ (MFIs’) productivity. In contrast, they found no significant differences in productivity, neither between microfinance banks and non-governmental organizations nor between Islamic and non-Islamic MFIs. Research limitations/implications This study extends previous research in the area of productivity and its determinants. It also adds to the body of productivity knowledge and methodology within the context of the microfinance industry in Yemen. Originality/value The study discovered new productivity determinants and re-assessed the importance of some already known ones. These determinants have been studied for the first time in Yemen’s microfinance industry and have contributed to answer the question of what is the most suitable productivity method that should be used. This study proved that the Hicks–Moorsteen TFP and the variable return to scale assumption are the only suitable methods to study productivity in the microfinance industry.

The role of national culture in the relationship between microfinance outreach and sustainability: a correlated random effects approach

2020 ◽  
Vol 27 (3) ◽  
pp. 447-472 ◽  
Author(s):  
Mohammad Zainuddin ◽  
Masnun Mahi ◽  
Shabiha Akter ◽  
Ida Md. Yasin
Keyword(s):  
National Culture ◽  
Random Effects ◽  
Information Exchange ◽  
Fixed Effects ◽  
Microfinance Institutions ◽  
Trade Off ◽  
Content Type ◽  
Correlated Random Effects ◽  
The Relationship

PurposeThis study investigates the role of national culture between outreach and sustainability of microfinance institutions (MFIs). Despite microfinance's deep embeddedness in cultural contexts, research on the influence of national culture on MFI performance is rather sparse. This paper seeks to fill this gap and, based on cross-country microfinance data, attempts to explain the outreach-sustainability relationship in reference to cultural factors.Design/methodology/approachAn unbalanced panel, consisting of 5,741 MFI-year observations of 1,232 MFIs from 43 countries in six regions, is drawn from the Microfinance Information Exchange (MIX) Market database. Two different econometric models are tested. Model 1 estimates the direct effect of outreach on sustainability, using a fixed-effects estimator. Model 2 examines the moderation effect of national culture on outreach-sustainability relationship, employing correlated random effects approach.FindingsThe results show that depth of outreach and financial sustainability of MFIs are negatively related, and the relationship is moderated by national culture. Power distance and uncertainty avoidance positively moderate the outreach-sustainability relationship, whereas individualism and masculinity negatively moderate the relationship.Originality/valueThe findings suggest that the national culture where MFIs are located plays an important contingent role in their performance and that the magnitude of the trade-off effect varies from culture to culture. The research thus provides further insight in the trade-off debate and contributes to literatures of both microfinance and cross-cultural management.

Sign in / Sign up

Export Citation Format

Share Document