Cost Efficiency and Gender Diversity in Microfinance: A Stochastic Frontier Approach

Abstract

Subsidies have been vital for microfinance, but their decline and impact on cost efficiency raise sustainability concerns. In a world with continuing declining subsidies, prioritizing management practices and cost efficiency emerge as a viable alternative approach toward financial sustainability. This study explores how gender in management and clientele affects microfinance cost efficiency. We apply recently developed techniques from the stochastic frontier literature to assess the impact women (both as borrowers and as bankers) have on the cost efficiency of microfinance institutions (MFIs). Using panel data from 1,507MFIs operating in 111 countries for the period 2010-2018 we document three main findings. First, we find that the worldwide cost efficiency in microfinance has slightly fallen. If a microfinance institution were to use its inputs as efficiently as possible, production costs could be reduced, on average, by approximately 29 percent. Second, we find that serving more women borrowers is less cost-efficient for MFIs than serving men. Third, we find that the impact of women bankers on cost efficiency varies according to the position held. While women on board and women loan officers are less cost-efficient, women managers and women staff members are more cost-efficient.

Keywords: microfinance, efficiency, women borrowers, women bankers.