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.

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.

scholarly journals Does bank regulation and supervision impedes the efficiency of microfinance institutions to eradicate poverty? Evidence from ASEAN-5 countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nurazilah Zainal ◽  
Annuar Md Nassir ◽  
Fakarudin Kamarudin ◽  
Siong Hook Law
Keyword(s):  
Poverty Reduction ◽  
Bank Regulation ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Financial Efficiency ◽  
Content Type ◽  
Regulation And Supervision ◽  
The Social ◽  
Bank Regulation And Supervision

Purpose The purpose of this study is to examine how banking regulation and supervision affect the performance of microfinance institutions (MFIs). It proposes performance of the MFIs from the aspect of social and financial efficiency because the MFIs nowadays not only view to sustain the social role of poverty eradication but in the same time they must strive the financial sustainability to maintain the operation in long run. This study also includes the macroeconomic condition and firm level variables to control for social and financial efficiency of the MFIs. Design/methodology/approach The data consists 168 MFIs from five countries in Southeast Asia from year 2011 to 2017. First stage of analysis is to identify level of social and financial efficiency by using data envelopment analysis approach. Second stage is to examine impact of bank regulation and supervision to the social and financial efficiency by applying panel regression analysis and generalized method of moments for robust estimation methods. Findings The finding shows the MFIs own lower social efficiency and higher score in financial efficiency. This indicates in pursuing financial sustainability, the MFIs in Southeast Asia countries have lost sight of their original mission of poverty reduction. Furthermore, the result also presents a significant impact of bank regulation and supervision to the social and financial efficiency of the MFIs. However, the results appear in different direction when more negative effect is associated with social efficiency. This specifies that bank regulation and supervision are not appropriate to accommodate the social needs, thus hampering the effort of poverty reduction by the MFIs. Research limitations/implications The present study only concentrates on the impact bank regulation and supervision to the performance of the MFIs. As the operation of the MFIs currently has been largely exposed in banking operation, it is suggested that future studies to look for other special issues such as country governance that might influence specifically in social and financial aspect of the MFIs. Practical implications The empirical findings from this study could be useful and may have significant implications for the regulators. The regulators or policymakers could establish the new regulation framework that fulfil the dual needs (social and financial) of the MFIs. Furthermore, the empirical findings also could serve as guidance to regulators and decision-makers in designing new policies for a sustainable and competitive sector of the MFIs. Although the MFIs recently brings a similar role as commercial banks, they need to retain the social aspects as that is the original mission of the MFIs Originality/value The present study proves that the bank regulation and supervision have brought a significant influence to the performance of the MFIs in ASEAN 5 countries.

scholarly journals Impact of Efficiency on Voluntary Disclosure of Non-Banking Financial Company—Microfinance Institutions in India

2021 ◽  
Vol 14 (7) ◽  
pp. 289
Author(s):  
Arpita Sharma ◽  
Shailesh Rastogi
Keyword(s):  
Voluntary Disclosure ◽  
Social Performance ◽  
Panel Data Analysis ◽  
Positive Association ◽  
Easy Access ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
The Government ◽  
Using Data ◽  
Dual Objectives

This paper investigates how the financial and social efficiency of firms influence the extent of the voluntary disclosure of Non-Banking Financial Companies–Micro Financial Institutions (NBFC-MFI). The study constructed an unweighted index of voluntary disclosure to estimate the level of voluntary disclosure of all of the included firms from the years 2015–2019. The financial and social efficiency, which is analogous to the technical efficiency of production theory and analyses both sustainability and outreach, respectively, was estimated using data envelopment analysis (DEA). The panel data analysis was completed, and a positive association of financial efficiency was estimated. The social efficiency was found to have no relationship to the voluntary disclosure level. This paper contributed to the literature by providing new determinants of voluntary disclosure. The study examines the econometric model and suggests that financially sustainable firms that utilize these resources well are more open to outsiders, while socially efficient firms are reluctant to voluntary disclosure, which also includes social activities, and consider this as a wasteful activity. The findings of this study are relevant to industry practitioners and regulators, who need to think upon the sustainability of this crucial sector by meeting the dual objectives of financial and social performance. This study is helpful to all stakeholders as well as for the government, who can use the results to design additional rules for the NBFC–MFI. This study will also help firms to design disclosure strategies to ascertain goodwill and less cost of capital, with easy access to funds.

Aligning financial inclusion and financial integrity

2019 ◽  
Vol 22 (4) ◽  
pp. 595-613 ◽  
Author(s):  
Thu Thi Hoai Tran ◽  
Louis De Koker
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Task Force ◽  
Empirical Studies ◽  
Financial Inclusion ◽  
Control Measures ◽  
Evaluation Methodology ◽  
Microfinance Institutions ◽  
Content Type ◽  
The Government

Purpose This study aims to consider the anti-money laundering/combating of financing of terrorism (AML/CFT) regime that applies to microfinance institutions (MFIs) and microfinance programmes and projects (MFPs) in Vietnam to identify ways in which to improve the alignment between financial inclusion and financial integrity objectives in relation to this sector. Design/methodology/approach This doctrinal study is informed by the Financial Action Task Force mutual evaluation methodology. Findings The AML/CFT regulatory framework for MFIs/MFPs is inadequate but improving. The money laundering and terrorist financing risks posed by microfinance are low and so is the capacity of many providers to comply with AML/CFT obligations. Given the low risk, there is space to simplify AML/CFT requirements for this sector in a manner that will better align financial inclusion and financial integrity policy objectives. Research limitations/implications This paper considers the implementation of AML/CFT obligations of MFIs/MFPs based on existing studies as well as own research relating to compliance and supervisory practices. Further empirical studies to determine for the whole microfinance sector could provide a more granular understanding of crime risks and compliance capacities in the sector. Practical implications AML/CFT regulators in Vietnam can take concrete steps to simplify the AML/CFT due diligence obligations of MFIs/MFPs and support these institutions to formalise and implement appropriate AML/CFT measures. Social implications MFIs/MFPs play a vital socio-economic role by providing financial services to the poor. Appropriate AML/CFT control measures can enable these providers to continue providing these services while strengthening economic formalisation and integrity goals of the government. Originality/value The paper provides novel supervisory perspectives on the AML/CFT regime in relation to MFIs/MFPs.

COMPARISON OF PERFORMANCE OF MICROFINANCE INSTITUTIONS WITH COMMERCIAL BANKS IN INDIA

2012 ◽  
Vol 01 (06) ◽  
pp. 110-120
Author(s):  
Zohra Bi ◽  
Shyam Lal Dev Pandey
Keyword(s):  
Financial Performance ◽  
Commercial Banks ◽  
Information Exchange ◽  
Financial Structure ◽  
Financial Data ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Access To Finance ◽  
Development Tool ◽  
Microfinance Institution

Microfinance in India has been viewed as a development tool which would alleviate poverty and enhance growth of the country through financial inclusion. Out of 6 lakh villages in India, only approximately 50000 have access to finance. India is a country which has the highest number of households which are excluded from banking. With the Andhra crisis of microfinance institutions and issues that microfinance institutions have a mission drift, the aim of the paper is to study the performance and efficiency of microfinance. A sample of microfinance institutions in India have been selected based on their ratings given by microfinance information exchange (MIX) for the study. The performance of these sample MFIs as well as their performance with respect to commercial banks in India have been studied using statistically tools. A microfinance institution is measured for financial sustainability based on its good financial accounts and the recognized accounting practices they follow according to Meyer (2002). Data for the microfinance institutions have been collected from Microfinance information exchange (MIX) where few of the MFIs have started reported their financial data. The MIX has classified the MFIs based on various parameters such as level of disclosure, financial parameters etc and rated them accordingly. Out of the 88 MFIs in India reported on MIX, 24 MFIs are taken as samples, these samples taken were five star rated by MIX. The financial parameters of these MFIs are studied and compared with the financial parameters of commercial banks and their financial performance can be analyzed. The various parameters taken for analyzing the financial performance of MFIs and banks include: Financial structure, Profitability and Efficiency.

Financial Sustainability of Microfinance Institutions and Macroeconomic Factors: A Case of South Asia

2021 ◽  
pp. 227797872110079
Author(s):  
Ainan Memon ◽  
Waqar Akram ◽  
Ghulam Abbas ◽  
Abbas Ali Chandio ◽  
Sultan Adeel ◽  
...  
Keyword(s):  
South Asia ◽  
Good Governance ◽  
Labour Force ◽  
Macro Level ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Method Of Moment ◽  
Macroeconomic Variables ◽  
Economic Decisions ◽  
The Government

This study explores the financial sustainability of microfinance institutions (MFIs) in the economic context to identify how macro-level economic decisions affect the micro-level decisions in the microfinance sector in South Asia. For that purpose, the data of 409 South Asian MFIs combined with the macroeconomic variables of respective countries are used over the period 1999–2017. The empirical analysis uses a fixed-effect model (FEM) to analyse the unbalance panel data of microfinance institutions and macroeconomic variables. We employ two-stage least squares (2SLS) model for robustness and System Generalized Method of Moment (GMM) to address the potential endogeneity and over-identification bias. The results reveal that economic indicators such as foreign investment, human development, inflation, interest rate, private credit, and labour force participation have negatively influenced financial sustainability except for the GDP growth. The overall economic results seem imperative from the good-governance perspective of MFIs. Besides, the government and microfinance policymakers need to give due consideration to the macro-level economic decisions to achieve the financial sustainability of MFIs. JEL Classification: A12, G21, G28, O1, Q01

scholarly journals Performance of Microfinance Providers in Sindh, Pakistan: A Study of Formal and Informal Microfinance Institutes

2020 ◽  
Vol 16 (1) ◽  
pp. 151-170
Author(s):  
Ghazala Tunio ◽  
Keyword(s):  
Financial Services ◽  
Poverty Alleviation ◽  
Sampling Technique ◽  
Financial Information ◽  
Microfinance Institutions ◽  
Important Relationship ◽  
Sindh Province ◽  
The Government ◽  
The Interest Rate ◽  
Number Of Branches

This research aims to analyze the performance of microfinance providers of the Sindh province of Pakistan. For this purpose, the formal and informal microfinance institutes were selected. Data was gathered from a sample of 150 managers of microfinance banks and institutions. In this research, the random sampling technique is used to collect the data through questionnaires. The OLS regression model is employed to analyze the data. The results of this study show that the number of branches, and less number of defaulters significantly affect the performance of microfinance institutes in Sindh, Pakistan. Moreover, the total cost also has an important relationship with the performance of microfinance organizations in Sindh. However, the study finds the interest rate, and more diversified financial services to have no significant impact on the performance of microfinance organizations. Due to the lack of financial information of the microfinance institutions in Sindh, there is dearth of the research on the performance of microfinance institutions. Rather than using only the published financial information this study relies on the information provided by the managers of the microfinance providers for the analysis. The results of this study have implications for the well-functioning of microfinance institutes, and for the government to achieve the poverty alleviation objectives in Pakistan

scholarly journals Determinants of Financial Sustainability of Microfinance Institutions in Ghana

2015 ◽  
Vol 7 (4(J)) ◽  
pp. 71-81
Author(s):  
Gershwin Long
Keyword(s):  
Financial Services ◽  
Market Failure ◽  
Negative Relationship ◽  
Secondary Data ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Efficiency Ratio ◽  
Academic Literature ◽  
Administrative Efficiency ◽  
High Level

The importance of microfinance to developmental objectives relating to access to financial services, poverty alleviation, inequality reduction, and providing a solution to financial market failure among others cannot be over-emphasized. Academic literature confirming this is abundant. However the sustainability of these institutions has been a major concern in the recent past. This study seeks to determine what drives financial sustainability of microfinance institutions within the Ghanaian context. The study follows a quantitative approach using secondary data sourced from MIX Market. An unbalanced panel dataset from 25 Ghanaian microfinance institutions over six years (2006-2011) was used. Econometric results found that sustainability of microfinance institutions is positively related to the yield on gross portfolio and administrative efficiency ratio and negatively related to staff productivity. The direction of the staff productivity is puzzling and calls for more in-depth research to understand the source of the negative relationship between high level of staff productivity and financial sustainability.

scholarly journals Social and Financial Efficiency of Microfinance Institutions in Pakistan

2015 ◽  
Vol 54 (4I-II) ◽  
pp. 389-403 ◽  
Author(s):  
Zahoor Khan ◽  
Jamalludin Sulaiman
Keyword(s):  
Financial Institutions ◽  
Social Role ◽  
Policy Implications ◽  
Financial Ratios ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Community Members ◽  
Bottom Line ◽  
Financial Efficiency ◽  
For Profit

Financial efficiency and profitability of „for profit‟ institutions have been traditionally measured with the help of financial ratios [Hassan and Sanchez (2009)]. However, financial ratios are inappropriate to investigate the sources of inefficiency, estimate financial or social efficiency with multiple inputs and outputs, and to decompose the sources of efficiency or inefficiency into technical, technological and scale efficiencies or inefficiencies respectively [Hassan and Sanchez (2009)]. Microfinance Institutions (MFIs) are special institutions, which simultaneously consider their social role to uplift the marginalised community members along with their commercial objective to secure self-sustainability. In standard literature this phenomenon is coined MFIs as being „double bottom line” institutions. [Gutierrez-Nieto, Serrano-Cinca, and Mar Molinero (2007); Gutiérrez-Nieto, Serrano-Cinca, and Molinero (2007)]. This simultaneity differentiates MFIs from conventional financial institutions. The achievement of socioeconomic efficiency is indispensable for MFIs to operate independently and on a wider scale. Thus investigation of socioeconomic efficiency of MFIs is important for monitoring and optimal policy implications.

scholarly journals STRATEGI PENGEMBANGAN KOPERASI LEMBAGA KEUANGAN MIKRO AGRIBISNIS (LKM-A) GAPOKTAN SARI MAKMUR KECAMATAN METRO TIMUR KOTA METRO

2019 ◽  
Vol 7 (1) ◽  
pp. 83
Author(s):  
Aurora Afifah Yasmin ◽  
Dyah Aring Hepiana Lestari ◽  
Muhammad Irfan Affandi
Keyword(s):  
Financial Services ◽  
Financial Management ◽  
Legal Status ◽  
Microfinance Institutions ◽  
Analysis Method ◽  
Excellent Service ◽  
External Training ◽  
The Government ◽  
Accounting Software

This research aims to analyze the internal and external environment, arrange development strategies, and determine priority strategies of Microfinance Institutions Farmer Groups Sari Makmur Cooperative. This research isperforms a case study method. Respondents  were 13 people consist of organizers and members of the cooperative, expert, and  regulator.  Data analysis method used in this research was qualitative analysis method. The results showed that the main internal strengths of the cooperative were its legal status and registered status at the financial services authority.  The main weakness was the lack of awareness of members in the cooperative. Externally, cooperative faced major opportunity in the form of the need for easy and fast loan services and the main threat of increasing community living costs. The priority strategies that could be used in the development and sustainability of the cooperative microfinance were using accounting software for financial data processing to improve cooperative’s financial management, improving the quality of cooperative’s organizer and managers by providing internal training and engaging in external training conducted by the government or other institutions, and improving the excellent service to meet the needs of cooperative’s members.Key words: cooperative, microfinance, strategies

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