Microfinance Efficiency Trade-offs and Complementarities
This study examines the drivers of MFI efficiency. Recent evidence of diminishing loan portfolio quality has heightened the drive to investigate MFI efficiency. Anecdotally, this has been attributed to the adverse effects of the global financial turmoil.
Studies show that MFI credit quality and growth dropped in the latter part of 2008 and early 2009 in comparison to that in the period from 2005 to 2007. The study assumes that:
- Patterns and trends of MFI efficiency vary depending on the assumption underlying returns to scale;
- MFIs’ inclination to either of the dual objectives, operational strategies, and the external environment affects their efficiency;
- Operational sustainability complements efficiency;
- MFIs targeting women trade off their financial efficiency with social efficiency.
The study extracts a balanced panel data of 164 MFIs for the period 2004-2008 from the MIX website. It reveals that contrary to a trade-off between financial efficiency and outreach, the latter tends to have a positive link with social efficiency. The study finds that bureaucracy has a negative effect on property registration, and there is a lack of credit information on social efficiency.
