Scales and technical efficiencies in Middle East and North African (MENA) micro financial institutions

Abstract

Purpose

The purpose of this paper is to investigate technical and scales efficiencies of MFIs in Middle East and North Africa (MENA) countries in provision of financial services. This study also aims at tracing the source of inefficiencies.

Design/methodology/approach

This paper uses the non‐parametric data envelopment analysis (DEA) approach to estimate the production technology for the set of MENA MFIs. The paper uses DEA because it allows us to perform analyses with small samples, which is the case for MENA, and also allows us to calculate Malmquist indexes to characterize productivity changes. Moreover, DEA does not require a production function to calculate the efficiency. It attempts to determine the efficiency of the firm against some imposed benchmark through mathematical programming.

Findings

The paper finds low technical efficiency for all MFIs under both intermediation and the production approaches of DEA methodology. This means that MFIs are wasting input resources (input oriented inefficient) and are not producing enough outputs (making loan, raising funds, and obtaining more borrowers per staff). The paper also does not find any improvement in those efficiencies during the period 2000‐2005.

Originality/value

The study contributes to the existing MFIs literature by pursuing an empirical and decomposition analysis of efficiency by employing two approaches of DEA methodology to trace the sources of inefficiencies which the managers, practitioners and policy makers need to focus on. DEA has been used as a tool to select the right mix of inputs and outputs to assist in tracing the sources of inefficiencies

Citation

Kabir Hassan, M., Sanchez, B. and Ngene, G. (2012), "Scales and technical efficiencies in Middle East and North African (MENA) micro financial institutions", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 5 No. 2, pp. 157-170. https://doi.org/10.1108/17538391211233434