The Cost Structure of Microfinance Institutions in Eastern Europe and Central Asia

27 Pages Posted: 6 Jun 2006 Last revised: 12 Dec 2017

See all articles by Valentina Hartarska

Valentina Hartarska

Auburn University - Department of Agricultural Economics and Rural Sociology; Auburn University - Department of Finance

Steven B. Caudill

Auburn University - Department of Economics

Daniel M. Gropper

College of Business, Florida Atlantic University

Date Written: January 1, 2006

Abstract

Microfinance institutions are important, particularly in developing countries, because they expand the frontier of financial intermediation by providing loans to those traditionally excluded from formal financial markets. This paper presents the first systematic statistical examination of the performance of MFIs operating in Eastern Europe and Central Asia. A cost function is estimated for MFIs in the region from 1999-2004. First, the presence of subsidies is found to be associated with higher MFI costs. When output is measured as the number of loans made, we find that MFIs become more efficient over time and that MFIs involved in the provision of group loans and loans to women have lower costs. However, when output is measured as volume of loans rather than their number, this last finding is reversed. This may be due to the fact that such loans are smaller in size; thus for a given volume more loans must be made.

Keywords: Eastern Europe, banking, microfinance, efficiency

JEL Classification: G20, G21, O16

Suggested Citation

Hartarska, Valentina and Caudill, Steven B. and Gropper, Daniel M., The Cost Structure of Microfinance Institutions in Eastern Europe and Central Asia (January 1, 2006). William Davidson Institute Working Paper No. 809, Available at SSRN: https://ssrn.com/abstract=905911 or http://dx.doi.org/10.2139/ssrn.905911

Valentina Hartarska (Contact Author)

Auburn University - Department of Agricultural Economics and Rural Sociology ( email )

Comer Hall
Auburn, AL 36849
United States

Auburn University - Department of Finance ( email )

Auburn, AL 36849
United States

Steven B. Caudill

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States
334-844-2907 (Phone)

Daniel M. Gropper

College of Business, Florida Atlantic University ( email )

777 Glades Rd. BU320
Department of Finance
Boca Raton, FL 33432
United States
5612973635 (Phone)
5612973686 (Fax)

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