Microfinance expansion and its effects on cost efficiency

Yimga, Jules

doi:10.1016/j.qref.2018.03.006

Cited by 19 publications

(15 citation statements)

References 42 publications

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“…However, there is a widespread of work on performance measurements in financial institutions; research in the area of MFIs is still in its infancy (Yimga, 2018b) and mounting rapidly nowadays. In this study, we have attempted to contribute a summary of a few notable MFI efficiency works of literature below.…”

Section: Overviews Of Efficiency Studiesmentioning

confidence: 99%

Efficiency assessment of microfinance institutions: using DEA with weighted Russell directional distance model

Vilvanathan

2020

BIJ

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PurposeThe study aims to focus on data envelopment analysis for assessing the microfinance institutions (MFIs) efficiency over the footings of its undesirable output, i.e. non-performing loans (NPLs). The attention is not only to evaluate the efficiency but also to identify the variable wise inefficiencies incorporating the quality of the portfolio.Design/methodology/approachThe paper assessed MFI efficiency using three different methods of treatment of undesirable output to portray the significant difference. It also has used an advanced methodological model, i.e. weighted Russell directional distance model (WRDDM), under the non-radial assumption that allowed us to find the variable-wise inefficiency contribution. The study also investigated the efficiency differences concerning ownership, including all sizes of MFIs.FindingsThe study findings evidence the fall in efficiency score as NPL integrated, and it is found to be statistically significant. In the context of inefficiency assessment, among all input and output variables, total employees and operating expenses, portfolio quality inefficiencies are the leading causes of MFI inefficiencies. Undesirable output inefficiency accounts for almost one-third part of the total inefficiencies and remaining due to input inefficiencies. It is significant to draw attention that there is no improvement in undesirable output inefficiency. By contrast, input inefficiencies retained gains for two years and gradually showed a decreasing trend throughout 2015–2017.Research limitations/implicationsThe authors have used balanced panel data of 72 Indian MFIs for five years' period from 2013–2017 whose complete data were available in the Microfinance Information Exchange.Practical implicationsThe paper has focused on identifying the inefficiencies that are needed to be focused on to attain efficiency. It could provide vital information to the managers, policymakers in identifying the causes of inefficiencies, which is crucial to improve for long-term sustainability. It will be a roadmap for benchmarking, strategy building and policy-making processes.Social implicationsThe findings of the study help in finding the benchmarking information for the inefficient decision-making units to identify the target units that need particular attention to focus. These practices could give a positive outcome, not only for institutions but also for the MFI clients.Originality/valueThe study provides an insight in to variable-wise inefficiency measurement using advanced model WRDDM in Indian context MFIs.

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Section: Overviews Of Efficiency Studiesmentioning

confidence: 99%

Efficiency assessment of microfinance institutions: using DEA with weighted Russell directional distance model

Vilvanathan

2020

BIJ

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“…MFIs not only offered new types of services, they also changed the mode of offering services, for example by introducing ATMs, chip cards, point-ofsale (POS) devices, and mobile banking. These services not only benefit customers by providing convenience and lower transaction costs but also enable MFIs to reach more clients in remote areas, reduce operational costs, and increase financial security (Rhyne and Otero, 2006;Yimga, 2018).…”

Section: Microfinance: Structural Change and Performancementioning

confidence: 99%

Convergence of the performance of microfinance institutions: A decomposition analysis

Hermes

Meesters³

2019

Economic Modelling

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“…It is argued that when the loan size is bigger, the transaction cost incurred by the MFI to serve the targeted financially excluded population tends to be lower (Shankar, 2007; Swamy, 2019). For MFIs, the lower transaction cost can improve efficiency and financial performance and can make it easy to increase the client outreach (Sangwan and Nayak, 2019; Yimga, 2018). Putting thrust on financial sustainability, self-sufficiency and income generation, it becomes imperative for MFIs to recover the cost of lending through loan portfolios.…”

Section: Introductionmentioning

confidence: 99%

“…Efficient loan size policy within the institutional framework may help the MFIs to create profitable loan portfolios to achieve a high level of financial performance (Srinivasan, 2015). The efficient loan size led financial performance can make it feasible for MFIs to make their large scale client outreach and continuation of operation in the long run (Ranjani and Kumar, 2018; Yimga, 2018). In India, as per Sa-dhan (2018) report, the MFI’s average loan size seems to have grown exponentially over the years from INR 7,481 in the year 2011 to INR 14,700 in 2018, reflecting their focus on financial sustainability.…”

Section: Introductionmentioning

confidence: 99%

Factors influencing the borrower loan size in microfinance group lending: a survey from Indian microfinance institutions

Sangwan

Nayak

2020

JFEP

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Purpose The purpose of this paper is to analyze the impact of the cost of microfinance intermediation on borrowers’ loan size. The identified transaction cost and credit risk factors tell about what a lender takes into accounts while screening and allocating loan amounts to the borrowers, where the lender has limited information about the client’s ability to repay. Design/methodology/approach The analysis is based on the primary data collected from a sample of 498 microfinance institutions (MFI) linked group clients covering two microfinance leading states of India. Findings Empirical findings suggest that the cost of microfinance intermediation has an impact on borrowers’ loan size. To reduce the cost, the MFIs lend big loans to clients having a high income, assets, land size, lower informal borrowings and having longer loan experiences. In MFI lending, the younger and less educated people are the ones who demand bigger loan amounts. The geographical distance of borrowers’ location from MFI offices, group size and interest rate are the other factors that influence the loan size. Originality/value The past empirical works seem to have not focused on how the cost of microfinance intermediation creates loan size variation among the borrowers in joint liability group lending. The endogeneity problem has not been resolved. The present article thus identifies the factors that influence the individual member loan size by using two-stage least squared regression to tackle the issue of endogeneity.

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Microfinance expansion and its effects on cost efficiency

Cited by 19 publications

References 42 publications

Efficiency assessment of microfinance institutions: using DEA with weighted Russell directional distance model

Efficiency assessment of microfinance institutions: using DEA with weighted Russell directional distance model

Convergence of the performance of microfinance institutions: A decomposition analysis

Factors influencing the borrower loan size in microfinance group lending: a survey from Indian microfinance institutions

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