This study aims to examine the factors that affect the social and financial efficiency of Indian Microfinance Institutions (MFIs). Relative efficiency of 38 non-banking financial companies (NBFC)-MFIs has been measured using the non-parametric data envelopment analysis (DEA) approach. The determinants of social and financial efficiency of MFIs have been identified using censored Tobit regression. The study findings indicate that NBFC-MFIs are financially more efficient than social. Regression analysis results reveal that age and size are important variables of financial efficiency while leverage and size are social efficiencies. This may be the first extensive study measuring the determinants of efficiency on financial and social dimensions separately for Indian NBFC-MFIs. This study contributes to the scarce literature by providing the role of efficiency in the sustainability of MFIs in the long run.
AduseiM. (2021). Interest rate and the social performance of microfinance institutions. The Quarterly Review of Economics and Finance, 80, 21–30.
2.
AnayiotosG., ToroyanH., & VamvakidisA. (2010). The efficiency of emerging Europe’s banking sector before and after the recent economic crisis. Financial Theory and Practice, 34(3), 247–267.
3.
AthanassopoulosA. D., & BallantineJ. A. (1995). Ratio and frontier analysis for assessing corporate performance: evidence from the grocery industry in the UK. Journal of the Operational Research Society, 46(4), 427–440.
4.
BalkenholB. (Ed.). (2007). Microfinance and public policy: Outreach, performance and efficiency. Springer.
5.
BankerR. D., CharnesA., & CooperW. W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management Science, 30(9), 1078–1092.
6.
BassemB. S. (2008). Efficiency of microfinance institutions in the Mediterranean: An application of DEA. Transition Studies Review, 15(2), 343–354.
7.
BergerA. N., & HumphreyD. B. (1997). Efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research, 98(2), 175–212.
8.
CharnesA., CooperW. W., & RhodesE. (1978). Measuring the efficiency of decision-making units. European Journal of Operational Research, 2(6), 429–444.
9.
ChauhanS. (2019). Leverage and firm efficiency: A study of Indian microfinance institutions. UNNAYAN: International Bulletin of Management and Economics, 10, 264–273
10.
ChauhanS. (2021a). Social and financial efficiency: A study of Indian microfinance institutions. IIM Kozhikode Society & Management Review, 10(1), 31–43.
11.
ChauhanS. (2021b). Measuring financial efficiency and ranking of Indian MFIs: An analysis using DEA vs PCA. International Management Review, 17, 61–99.
12.
ChauhanS., KumarC. V. R. S., & VermaA. (2020). Capital structure and performance of Indian microfinance institutions. IUP Journal of Applied Finance, 26(4), 30–48.
13.
ChauhanS., KumarC. V. R. S., & VermaA. (2020). Capital Structure and Performance of Indian Microfinance Institutions. IUP Journal of Applied Finance, 26(4), 19.
14.
ChowdhuryT. A., & MukhopadhayaP. (2012). Assessment of multidimensional poverty and effectiveness of microfinance-driven government and NGO projects in the rural Bangladesh. The Journal of Socio-Economics, 41(5), 500–512.
15.
ConningJ. (1999). Outreach, sustainability and leverage in monitored and peer-monitored lending. Journal of Development Economics, 60(1), 51–77.
16.
CookW. D., & SeifordL. M. (2009). Data envelopment analysis (DEA)–Thirty years on. European journal of operational research, 192(1), 1–17.
17.
CullR., Demirgüç-KuntA., & MorduchJ. (2007). Financial performance and outreach: A global analysis of leading microbanks. The Economic Journal, 117(517), F107–F133.
18.
D’EspallierB., GoedeckeJ., HudonM., & MerslandR. (2017). From NGOs to banks: Does institutional transformation alter the business model of microfinance institutions?World Development, 89, 19–33.
19.
DaherL., & Le SaoutE. (2017). Performance of listed microfinance institutions. Strategic Change, 26(2), 145–158.
20.
Di MartinoP., & SarsourS. (2012). Microcredit in Palestine (1995–2008): A business history perspective. Business History, 54(3), 441–461.
21.
EfendicV., & HadziahmetovicN. (2017). The two dimensional efficiency (social and financial) of microfinance institutions—Case of Bosnia and Herzegovina. The South East European Journal of Economics and Business, 12(2), 85–101.
22.
FallF., AkimA. M., & WassongmaH. (2018). DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis. World Development, 107, 176–188.
23.
FarrellM. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society: Series A (General), 120(3), 253–281.
24.
FerdousiF. (2013, December). Performance of microfinance institutions in Asia: DEA based efficiency analysis [Paper presentation]. 2013 International Conference on the Modern Development of Humanities and Social Science. Atlantis Press.
25.
GolanyB., & RollY. (1989). An application procedure for DEA. Omega, 17(3), 237–250.
26.
GonzalezA. (2007). Efficiency drivers of microfinance institutions (MFIs): The case of operating costs. Microbanking Bulletin, (15), 6.
27.
Gutiérrez-NietoB., Serrano-CincaC., & Mar MolineroC. (2009). Social efficiency in microfinance institutions. Journal of the Operational Research Society, 60(1), 104–119.
28.
Gutierrez-NietoB., Serrano-CincaC., & MolineroC. M. (2007). Microfinance institutions and efficiency. Omega, 35(2), 131–142.
29.
HaqM., SkullyM., & PathanS. (2010). Efficiency of microfinance institutions: A data envelopment analysis. Asia-Pacific Financial Markets, 17(1), 63–97.
30.
HartarskaV. (2005). Governance & performance of microfinance institutions in Central and Eastern Europe and the newly independent states. World Development, 33(10), 1627–1643.
31.
HassanK. M. &, SanchezB. (2009). Efficiency analysis of microfinance institutions in developing countries [Networks Financial Institute Working Paper 2009-WP-12]. Indiana State University.
32.
HassanM. K. & TufteD. R. (2001). The x-efficiency of a group-based lending institution: The case of the Grameen Bank. World Development, 29(6), 1071–1082.
33.
HermesN., LensinkR., & MeestersA. (2009). Financial development and the efficiency of microfinance institutions (working paper). University of Groningen. http://ssrn.com/abstract=1396202orhttp://dx.doi.org/10.2139/ssrn.1396202
34.
HermesN., LensinkR., & MeestersA. (2011). Outreach and efficiency of microfinance institutions. World Development, 39(6), 938–948.
35.
JayadevM., & RaoR. N. (2012). Financial resources of the microfinance sector: Securitisation deals–Issues and challenges interview with the MFIS Grameen Koota and Equitas. IIMB Management Review, 24(1), 28–39.
36.
JohnsonS., & RogalyB. (1997). Microfinance and poverty reduction. Oxfam.
37.
KarS. & DebJ. (2017). Efficiency determinants of microfinance Institutions in India: Two stage DEA analysis. The Central European Review of Economics and Management, 1(4), 87–116.
38.
KaurP. (2016). Efficiency of microfinance institutions in India: Are they reaching the poorest of the poor?Vision, 20(1), 54–65.
39.
KhanA., & ShireenS. (2020). Drivers of financial and operational efficiency of MFIs: Empirical evidences from Eastern Europe and Central Asia. Benchmarking: An International Journal, 27(9), 2679–2697.
40.
KhanamD., MohiuddinM., HoqueA., & WeberO. (2018). Financing micro-entrepreneurs for poverty alleviation: A performance analysis of microfinance services offered by BRAC, ASA, and Proshika from Bangladesh. Journal of Global Entrepreneurship Research, 8(1), 27.
41.
KoopmansT. C. (1951). Efficient allocation of resources. Econometrica: Journal of the Econometric Society, 19(5), 465.
42.
KoveosP., & RandhawaD. (2004). Financial services for the poor: Assessing microfinance institutions. Managerial Finance, 30(9), 70–95.
43.
KumarN. & SensarmaR. (2017). Efficiency of microfinance institutions in India: A stochastic distance function approach. Journal of Emerging Market Finance, 16(2), 151–168.
44.
LebovicsM., HermesN., & HudonM. (2016). Are financial and social efficiency mutually exclusive? A case study of Vietnamese microfinance institutions. Annals of Public and cooperative Economics, 87(1), 55–77.
45.
LedgerwoodJ. (1999). Sustainable banking with the poor microfinance handbook. World Bank.
46.
MasoodT., & AhmadM. I. (2012). Efficiency of microfinance institutions in India for poverty alleviation. American Journal of Entrepreneurship, 5(2), 64.
47.
MerslandR., & StromR. O. (2009). Performance and governance in microfinance institutions. Journal of Banking & Finance, 33(4), 662–669.
48.
Microfinance Barometer. (2019). A look back at the trends in Microfinance. Retrieved from https://www.convergences.org/wp-content/uploads/2019/09/Microfinance-Barometer-2019_web-1.pdf
49.
NavajasS., SchreinerM., MeyerR. L., Gonzalez-VegaC., & Rodriguez-MezaJ. (2000). Microcredit and the poorest of the poor: Theory and evidence from Bolivia. World development, 28(2), 333–346.
50.
NghiemH., CoelliT., & RaoP. (2006). The efficiency of microfinance in Vietnam: Evidence from NGO schemes in the north and the central regions. International Journal of Environmental, Cultural, Economic and Social Sustainability, 2(5), 71–78.
51.
NouraniM., MalimN. A. K., & MiaM. A. (2021). Revisiting efficiency of microfinance institutions (MFIs): An application of network data envelopment analysis. Economic Research-Ekonomska Istraživanja, 34(1), 1146–1169.
52.
Oteng-AbayieE. F., AmanorK., & FrimpongJ. M. (2011). The measurement and determinants of economic efficiency of microfinance institutions in Ghana: A stochastic frontier approach. African Review of Economics and Finance, 2(2), 149–166.
53.
PalD. (2010). Measuring technical efficiency of microfinance institutions in India. Indian Journal of Agricultural Economics, 65(4), 639–657.
54.
PaxtonJ. (2007). Contrasting methodologies for expanding microfinance outreach to the rural poor: Trade-offs and lessons from Mexico’s PATMIR project. Savings and Development, 31(3), 283–306.
55.
Piot-LepetitI. & NzongangJ. (2014). Financial sustainability and poverty outreach within a network of village banks in Cameroon: A multi-DEA approach. European Journal of Operational Research, 234(1), 319–330.
56.
QayyumA. & AhmedM. (2006). Efficiency and sustainability of micro finance institutions in South Asia. Research Journal in Social Science, 3(1), 1–34.
57.
QuayesS. (2012). Depth of outreach and financial sustainability of microfinance institutions. Applied Economics, 44(26), 3421–3433.
58.
RamanathanR. (2003). An introduction to data envelopment analysis: a tool for performance measurement. SAGE Publications.
59.
RBI. (2021, June14). Consultative Document on Regulation of Microfinance. https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/MICROFINANCE21A930650DE644A2B6DEB55BF03315D6.PDF
60.
Sa-Dhan. (2018). The Bharat Microfinance Report. https://moneymint.com/wp-content/uploads/2020/07/The-Bharat-Microfinace-Report-2017-Final-1.pdf
61.
SchmidtP., & SicklesR. C. (1984). Production frontiers and panel data. Journal of Business & Economic Statistics, 2(4), 367–374.
62.
ShawJ. (2004). Microenterprise occupation and poverty reduction in microfinance programs: evidence from Sri Lanka. World Development, 32(7), 1247–1264.
63.
ShephardG. C. (1953). Unitary groups generated by reflections. Canadian Journal of Mathematics, 5, 364–383.
64.
SimanowitzA., & WalterA. (2002). Ensuring Impact: Reaching the Poorest While Building Financially Self-Sufficient Institutions, and Showing Improvement in the Lives of the Poorest Families: Summary of Article Appearing in Pathways Out of Poverty: Innovations in Microfinance for the Poor (No. 1762-2016-141572). University of Sussex, Imp-Act: Improving the Impact of Microfinance on Poverty: Action Research Program.
65.
SimarL., & WilsonP. W. (2007). Estimation and inference in two-stage, semi-parametric models of production processes. Journal of Econometrics, 136(1), 31–64.
66.
SinghS., GoyalS. K., & SharmaS. K. (2013). Technical efficiency and its determinants in microfinance institutions in India: A firm level analysis. Journal of Innovation Economics Management, (1), 15–31.
67.
SufianF. (2006). The efficiency of non-bank financial institutions: empirical evidence from Malaysia. International Journal of Finance and Economics, 5(2), 6.
68.
VanrooseA., & D’EspallierB. (2013). Do microfinance institutions accomplish their mission? Evidence from the relationship between traditional financial sector development and microfinance institutions’ outreach and performance. Applied Economics, 45(15), 1965–1982.
69.
WidiartoI., & EmrouznejadA. (2015). Social and financial efficiency of Islamic microfinance institutions: A data envelopment analysis application. Socio-economic Planning Sciences, 50, 1–17.
70.
WijesiriM., ViganòL., & MeoliM. (2015). Efficiency of microfinance institutions in Sri Lanka: a two-stage double bootstrap DEA approach. Economic Modelling, 47, 74–83.
71.
WollerG. M., DunfordC., & WoodworthW. (1999). Where to microfinance. International Journal of Economic Development, 1(1), 29–64.
72.
YaronJ. (1994). What makes rural finance institutions successful?The World Bank Research Observer, 9(1), 49–70.
