Drivers of financial and operational efficiency of MFIs: empirical evidences from Eastern Europe and Central Asia
Benchmarking: An International Journal
ISSN: 1463-5771
Article publication date: 18 September 2020
Issue publication date: 9 November 2020
Abstract
Purpose
The study attempts to examine the bias-adjusted financial and operational efficiency estimates of microfinance institutions (MFIs) operating in the Eastern Europe and Central Asia (ECA) region during the financial year 2017–2018. In addition, the study also identifies the responsible factors determining the financial and operational performances of MFIs operating in the ECA region.
Design/methodology/approach
The study employs two-stage bootstrap data envelopment analysis (DEA). In the first stage, the authors incorporate the bootstrap procedure in the DEA framework as suggested by Simar and Wilson (2000) to estimate the bias-corrected efficiency scores of 67 sample MFIs. In order to identify the drivers of efficiency level, the study deploys the bootstrap truncated regression model following the Simar and Wilson (2007) guidelines in the second stage of analysis.
Findings
The authors note from the empirical results that MFIs operating in the ECA region are relatively more financially efficient (0.588) than socially efficient (0.496). However, none of the MFIs were found to be operating at best-practice frontier while considering the bias-adjusted efficiency estimates. Further, the results of second stage of analysis confirm that corporate governance, that is, board size has positive and statistically significant impact on MFIs’ performances. In addition, the bad credit quality deteriorates both financial revenue and operational efficiency. Moreover, the MFIs’ size, profit status and debt-to-equity ratio were also found to be statistically significant to determine the operational and financial efficiency of MFIs in the ECA region.
Practical implications
The study provides the robust efficiency estimates and factors responsible to determine the financial and operational efficiency of MFIs operating in the ECA region. Further, the empirical results of the study provide the inputs and further direction to the policymakers, regulators, practitioners and managers in framing the policy and optimal operating strategies for ECA MFIs industry.
Originality/value
The study extends the DEA analysis by incorporating the bootstrap procedure in DEA model to estimate the bias-adjusted efficiency scores which are more reliable and robust. In addition, bootstrap truncated regression has been applied to identify the drivers of efficiency. Moreover, in the literature there is no single study which has deployed the double bootstrap DEA framework to examine the financial and operational efficiency estimates and its drivers.
Keywords
Acknowledgements
The authors would like to thank Professor Angappa Gunasekaran, the editor of the journal and two anonymous referees for their valuable comments and suggestions, which helped to improve the quality of the paper substantially. Further, the authors are solely responsible for any remaining errors.
Citation
Khan, A. and Shireen, S. (2020), "Drivers of financial and operational efficiency of MFIs: empirical evidences from Eastern Europe and Central Asia", Benchmarking: An International Journal, Vol. 27 No. 9, pp. 2679-2697. https://doi.org/10.1108/BIJ-11-2019-0515
Publisher
:Emerald Publishing Limited
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