Institutional factors and efficiency performance in the global microfinance industry
Benchmarking: An International Journal
ISSN: 1463-5771
Article publication date: 11 March 2022
Issue publication date: 14 February 2023
Abstract
Purpose
Measuring the success of microfinance institutions (MFIs) using a single efficiency value and then exploring its determining factors might be misleading. Hence, this study decomposed the efficiency measure into three divisions, namely operational, financial sustainability and social outreach. Subsequently, the authors identified factors affecting these efficiencies in the second stage regression analysis.
Design/methodology/approach
This study employed the network data envelopment analysis approach to evaluate each division of efficiency of 90 MFIs from 2013 to 2018 and used second-stage regression techniques (Tobit and Truncated) to examine the effect of institutional factors.
Findings
The authors’ efficiency analysis revealed that financial sustainability and social outreach were responsible for the low overall efficiency. The second stage analysis revealed the negative influence of institutional factors such as efficiency wage (particularly among small MFIs) on financial sustainability, social outreach and overall efficiencies. Staff turnover reduced operational, financial and overall efficiencies, particularly for large MFIs. The presence of female board members and staff improved the efficiency of MFIs, thus highlighting the pivotal role of women in the success of MFIs. Besides, the effects of regional location of MFIs, regulation and legal status on efficiencies were further discussed.
Originality/value
The study has uniquely evaluated three different types of efficiency in MFIs and employed conventional techniques for the second-stage regression to identify the determinants of efficiency. The findings will enable managers to make appropriate decisions to enhance their organisational efficiency.
Keywords
Acknowledgements
The authors greatly acknowledge the constructive comments and suggestions from the two anonymous reviewers on the earlier version of the paper. The authors also strongly believe that the quality of the paper has been improved substantially after addressing the recommended revisions. The first author (Md Aslam Mia) is currently a visiting professor (research) at Department of Business Administration, Daffodil International University, Dhaka, Bangladesh. The authors also acknowledge the short-term research grant from Universiti Sains Malaysia, Penang, Malaysia (Grant No: 304/PMGT/6315547). Any remaining errors are the authors’ own. The usual caveats apply.
Citation
Mia, M.A., Rangel, G.J., Nourani, M. and Kumar, R. (2023), "Institutional factors and efficiency performance in the global microfinance industry", Benchmarking: An International Journal, Vol. 30 No. 2, pp. 433-459. https://doi.org/10.1108/BIJ-06-2021-0326
Publisher
:Emerald Publishing Limited
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