Efficiency Analysis of Microfinance Institutions in Developing Countries

Networks Financial Institute Working Paper 2009-WP-12

22 Pages Posted: 22 Oct 2009  

Kabir M. Hassan

University of New Orleans

Benito Sanchez

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: October 1, 2009

Abstract

This paper investigates technical and scales efficiencies of microfinance institutions (MFI) in three regions: Latin America countries, Middle East and North Africa (MENA) countries, and South Asia countries, and compares efficiencies across regions and across type of MFIs. We find that technical efficiency is higher for formal MFIs (banks and credit unions) than non-formal MFIs (nonprofit organizations and non-financial institutions). Furthermore, South Asian MFIs have higher technical efficiency than Latin American and MENA MFIs. The source of inefficiency is pure technical rather than scale, suggesting that MFIs are either wasting resources or are not producing enough outputs (making enough loans, raising funds, and getting more borrowers).

Keywords: Poverty, Microfinance Institutions, Efficiency Analysis and Data Envelopment Analysis, Government Policy

JEL Classification: C14, G29, L31

Suggested Citation

Hassan, Kabir M. and Sanchez, Benito, Efficiency Analysis of Microfinance Institutions in Developing Countries (October 1, 2009). Networks Financial Institute Working Paper 2009-WP-12. Available at SSRN: https://ssrn.com/abstract=1492238 or http://dx.doi.org/10.2139/ssrn.1492238

Kabir M. Hassan (Contact Author)

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States
504-280-6163 (Phone)
504-280-6397 (Fax)

Benito Sanchez

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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