Sustainability of Indian Microfinance Institutions by Nadiya Marakkath

Author:Nadiya Marakkath
Language: eng
Format: epub
Publisher: Springer India, New Delhi

The processes sketched in Fig. 5.1 are elucidated in the ensuing sections of this chapter.

5.3 Literature Review on Microfinance Institution Efficiency Analysis

Authors like Farrington (2000) and Lafourcade et al. (2005) have used ratio analysis technique for MFI efficiency measurement. Stochastic frontier analysis, a parametric method, is used by authors like Hassan and Tufte (2001) and Desrochers and Lamberte (2003) for efficiency analysis. But both ratio analysis and stochastic frontier analysis techniques have limitations in using multiple inputs and multiple outputs for estimating the joint efficiency of MFIs. This can be effectively done by DEA, a non-parametric method that does not impose a priori functional form for production technology. Despite this advantage, DEA is used only in a handful of studies to examine the efficiency of MFIs. Some attempts made across the world in this direction are discussed below.

Nghiem et al. (2006) conducted a DEA study on 46 MFIs in Vietnam, using labour cost and nonlabour costs as inputs and number of savers, number of borrowers and number of groups as outputs. The 46 MFIs were found technically efficient, with an average technical efficiency score of 80 %. Guitierrez-Nieto et al. (2007) conducted a similar DEA work on 30 Latin American MFIs. Number of credit officers and operating expenses were used as inputs and number of loans outstanding, gross loan portfolio and interest and fee income were used as outputs. Qayyum and Ahmad (2006) also contributed in this line, by using an extended sample of 85 MFIs from South Asia for DEA analysis. Fifteen Pakistani, 25 Indian and 45 Bangladeshi MFIs were assessed using a DEA model, which had credit officers and cost per borrower as inputs and loans disbursed by MFI as output. The study attributes inefficiencies in the three South Asian countries to be technical in nature than scale inefficiencies and calls for more managerial and technological improvements. Another DEA work was conducted on 20 Malaysian MFIs by Sufian in the year 2006. Total deposits and fixed assets were used as inputs and total loans and other income were used as outputs in the DEA model. The study observed only 28.75 % of all Malaysian MFIs to be efficient and more profitable. In the year 2008, 35 MFIs in Mediterranean region were assessed using a DEA model in a work by Bassem. Number of personnel and total assets were used as inputs and number of women borrowers and return on assets were used as outputs in the model. The study found eight MFIs in the Mediterranean region to be technically efficient. Recently, in the year 2009, Haq, Skully and Pathan conducted a DEA study on 39 MFIs across Africa, Asia and Latin America. Labour, cost per borrower and cost per saver were used as inputs and savers per staff member and borrowers per staff member were used as outputs. The study concluded by commenting that in the long run, bank MFIs will outperform NGO MFIs, as they have more access to local capital market.

Out of the above-discussed works, only

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