Cost Efficiency and Outreach of Microfinance Institutions in Ethiopia: Do They Contrast with Financial Cooperatives?

21 Pages Posted: 11 Mar 2014

See all articles by Gashaw Tadesse Abate

Gashaw Tadesse Abate

University of Trento; European Research Institute on Cooperative & Social Enterprises (EURICSE)

Carlo Borzaga

University of Trento; European Research Institute on Cooperative & Social Enterprises (EURICSE)

Kindie Getnet

International Water Management Institute (IWMI)

Date Written: February 28, 2014

Abstract

Using a stochastic frontier approach, we analyse the imposition of financial sustainability requirement on the traditional social mission of microfinance – outreach to the poor. We also address whether the way ownership is organised and practiced affects the costs of microfinance delivery. Based on a disaggregated 107 sample microfinance providers in Ethiopia, the results suggest that outreach to the poor and achieving financial sustainability (as measured by cost efficiency) are contradictory objectives. Microfinance providers that are closer to the best practicing cost frontier are those with higher average loan sizes and lower proportion of women borrowers. The results also indicate that financial cooperatives are better in cost containment compared to specialised microfinance institutions.

Keywords: Microfinance, financial cooperatives, cost efficiency, outreach, trade-off, Ethiopia

JEL Classification: Q12, Q13, Q16

Suggested Citation

Abate, Gashaw Tadesse and Borzaga, Carlo and Getnet, Kindie, Cost Efficiency and Outreach of Microfinance Institutions in Ethiopia: Do They Contrast with Financial Cooperatives? (February 28, 2014). Euricse Working Paper No. 65 | 14. Available at SSRN: https://ssrn.com/abstract=2402607 or http://dx.doi.org/10.2139/ssrn.2402607

Gashaw Tadesse Abate (Contact Author)

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

European Research Institute on Cooperative & Social Enterprises (EURICSE) ( email )

Via S. Giovanni 36
38122 Trento (TN)
Italy

Carlo Borzaga

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

European Research Institute on Cooperative & Social Enterprises (EURICSE) ( email )

Via S. Giovanni 36
38122 Trento (TN)
Italy

Kindie Getnet

International Water Management Institute (IWMI) ( email )

Addis Ababa
Ethiopia

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