Institutional factors and efficiency performance in the global microfinance industry

Abstract

PurposeMeasuring the success of microfinance institutions (MFIs) using a single efficiency value and then exploring its determining factors might be misleading. Hence, this study decomposed the efficiency measure into three divisions, namely operational, financial sustainability and social outreach. Subsequently, the authors identified factors affecting these efficiencies in the second stage regression analysis.Design/methodology/approachThis study employed the network data envelopment analysis approach to evaluate each division of efficiency of 90 MFIs from 2013 to 2018 and used second-stage regression techniques (Tobit and Truncated) to examine the effect of institutional factors.FindingsThe authors’ efficiency analysis revealed that financial sustainability and social outreach were responsible for the low overall efficiency. The second stage analysis revealed the negative influence of institutional factors such as efficiency wage (particularly among small MFIs) on financial sustainability, social outreach and overall efficiencies. Staff turnover reduced operational, financial and overall efficiencies, particularly for large MFIs. The presence of female board members and staff improved the efficiency of MFIs, thus highlighting the pivotal role of women in the success of MFIs. Besides, the effects of regional location of MFIs, regulation and legal status on efficiencies were further discussed.Originality/valueThe study has uniquely evaluated three different types of efficiency in MFIs and employed conventional techniques for the second-stage regression to identify the determinants of efficiency. The findings will enable managers to make appropriate decisions to enhance their organisational efficiency.

Efficiency and Performance of Microfinance Institutions: A Systematic Literature Review

“…In other words, eficiency in microfinance institutions refers to how well microfinance institutions allocate the input resources such as assets, subsidies, and personnel to produce output measured in terms of the loan portfolio and poverty outreach (Bassem, 2008). Another new branch of literature addresses microfinance performance from an efficiency perspective (Adusei, 2019;Bibi et al, 2018;Khan & Shireen, 2020;Mia et al, 2019Mia et al, , 2023Van Damme et al, 2016;Wijesiri et al, 2017;Zheng & Zhang, 2021) Studies thus recommend relative efficiency as a performance criterion that can be applied equally to measure overall, social, and financial aspects of MFI performance (Widiarto & Emrouznejad, 2015). Efficiency in Microfinance institutions can be separated into two components; financial efficiency and social efficiency.…”

Employee turnover and the social outreach (breadth): international evidence from the microfinance industry

“…Employee turnover is a major concern for organizations, particularly MFIs, due to its link with economic and psychological outcomes. It has attracted significant attention in recent times owing to its direct effect on the performance of firms (Lee, 2018; Mia et al , 2023). Employee turnover tends to increase an organization’s expenditure, which arises from the recruitment and training of new staff, among other related factors.…”