Technical, Economic and Allocative Efficiency of Microfinance Borrowers and Non-borrowers: Evidence from Peasant Farming in Bangladesh

This study assesses the impact of access to microfinance on technical, economic and allocative efficiency of farmers in Bangladesh. It is based on non-discretionary Data Envelopment Analysis (DEA) of survey data for 2009.

The study compares efficiency estimates for microfinance borrowers and non-borrowers. Results reveal that:

• Land fragmentation, family size, household wealth, on-farm training and off-farm income share are major determinants of inefficiency;
• Efficiency scores between microfinance borrowers and non-borrowers are significantly different;
• Inefficiencies resulted in 53 percent excess cost;
• Agricultural microfinance at reasonable cost may help farmers to use inputs in ways that minimize cost.

The paper states that policies that ensure access to microfinance, motivate farmers to preserve agricultural land, increase farmers education level and encourage them to use on-farm training can increase overall efficiency. It suggests that the government should actively participate in agricultural microfinance by integrating it with Bangladeshs national agricultural credit policies.