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Abstract

We examine the efficiency–outreach debate in the context of Indian microfinance institutions (MFIs). We employ the stochastic distance function approach for 75 MFIs during 2004–2011. We find that there are significant inefficiency effects but efficiency is improving over time. Among the determinants of inefficiency, average loan balance per borrower and number of women borrowers appear to improve efficiency. This suggests that the efficiency–outreach debate is more nuanced than that presented in the literature and depends on the way outreach is defined. Profitability, size and leverage seem to increase efficiency, whereas age of the MFI is associated with higher inefficiency.

JEL Classification: G21, C51, C33

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Keywords

Microfinance institutions efficiency stochastic distance function

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Efficiency of Microfinance Institutions in India: A Stochastic Distance Function Approach

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