Financial and social efficiency in the Yemen microfinance institutions: A Hicks–Moorsteen TFP index analysis

Abstract

Purpose

The purpose of this paper is to discover the most important productivity determinants of Yemeni microfinance institutions. In addition, this study tests the most appropriate tool to measure productivity in such unique industry.

Design/methodology/approach

The authors applied data envelopment analysis (DEA) with the variable return to scale after testing the technology return to scale assumption. Then, they used DEA with bootstrapping technique to overcome the borne biasness in the conventional DEA analysis. Finally, the authors presented the Hicks–Moorsteen (total factor productivity [TFP]) as the most suitable tool for the technology presented in this study.

Findings

In this paper, the authors found a prolonged deterioration in the productivity scores of microfinance institutions in Yemen. This study highlights the importance of operating in rural areas to improve micro finance institutions’ (MFIs’) productivity. In contrast, they found no significant differences in productivity, neither between microfinance banks and non-governmental organizations nor between Islamic and non-Islamic MFIs.

Research limitations/implications

This study extends previous research in the area of productivity and its determinants. It also adds to the body of productivity knowledge and methodology within the context of the microfinance industry in Yemen.

Originality/value

The study discovered new productivity determinants and re-assessed the importance of some already known ones. These determinants have been studied for the first time in Yemen’s microfinance industry and have contributed to answer the question of what is the most suitable productivity method that should be used. This study proved that the Hicks–Moorsteen TFP and the variable return to scale assumption are the only suitable methods to study productivity in the microfinance industry.

Citation

Al-Awlaqi, M.A. and Aamer, A.M. (2019), "Financial and social efficiency in the Yemen microfinance institutions: A Hicks–Moorsteen TFP index analysis", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 12 No. 3, pp. 322-345. https://doi.org/10.1108/IMEFM-10-2017-0276