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Measuring the Performance of Microfinance Institutions

17 Pages Posted: 27 Jul 2006 Last revised: 29 Jan 2008

Giovanni Ferro-Luzzi

University of Geneva

Sylvain Weber

University of Neuchatel - Institute for Research in Economics (IRENE)

Date Written: July 2006

Abstract

Measuring the performance of microfinance institutions (MFIs) is not a trivial task. Indeed, looking at the financial sustainability of an MFI only gives one feature of its performance. As many MFIs primarily exist in order to help the poorest people, one also has to include aspects of outreach in their performance. Hence, MFIs' performance can be termed multidimensional.

This paper illustrates how some statistical tools can offer new insights in the context of MFIs' performance evaluation. Factor analysis is used in a first step to construct performance indices based on several possible associations of variables without posing too many a priori restrictions. The base variables are thus combined to produce different factors, each one representing a distinct dimension of performance. We then use the individual scores ascribed to each MFI on each factor as the dependent variables of a simultaneous-equations model and present new evidence on the determinants of MFIs' performance.

Keywords: Microfinance, Outreach, Self-sustainability, Factor analysis

JEL Classification: O12, O16, G21, C35

Suggested Citation

Ferro-Luzzi, Giovanni and Weber, Sylvain, Measuring the Performance of Microfinance Institutions (July 2006). Available at SSRN: https://ssrn.com/abstract=918750 or http://dx.doi.org/10.2139/ssrn.918750

Giovanni Ferro-Luzzi

University of Geneva ( email )

Fac SES-DSE (Unimail)
40, Boulevard du Pont-d'Arve
Genève 4, CH - 1211
Switzerland
+41223798266 (Phone)
+41223798293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/Staff/maitresass/ferroluzzig.html

Sylvain Weber (Contact Author)

University of Neuchatel - Institute for Research in Economics (IRENE) ( email )

A.-L. Breguet 2
Neuchatel, 2000
Switzerland
+41327181442 (Phone)

HOME PAGE: http://www2.unine.ch/irene/lang/en/collaborateurs/sylvain_weber

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