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Impact of regulatory efficiency and market openness to social and financial efficiency: empirical evidence from microfinance institutions

Nazratul Aina Mohamad Anwar (Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Nilai, Malaysia)
Hafezali Iqbal Hussain (Taylor’s Business School, Taylor’s University, Subang Jaya, Malaysia and University of Economics and Human Sciences in Warsaw, Warszawa, Poland)
Fakarudin Kamarudin (School of Business and Economics, Universiti Putra Malaysia, Serdang, Malaysia and EIS-UPMCS, Centre for Labour Market Studies, SOCSO, Putrajaya, Malaysia)
Fadzlan Sufian (Universiti Teknologi Mara, Melaka Branch, Alor Gajah Campus, Malaysia )
Nurazilah Zainal (Universiti Teknologi Mara, Negeri Sembilan Branch, Seremban 3 Campus, Malaysia)
Che Mun Wong (School of Business and Economics, Universiti Putra Malaysia, Serdang, Malaysia)

Society and Business Review

ISSN: 1746-5680

Article publication date: 27 January 2021

Issue publication date: 2 August 2021

283

Abstract

Purpose

Microfinance institutions (MFIs) play a significant role in society to help low-income consumers that liaise with sustainable development goals. Therefore, the purpose of this paper is to examine the effects of two economic freedom components, namely, regulatory efficiency on business freedom and monetary freedom; and market openness on investment freedom and financial freedom. Their influence on the efficiency of MFIs in both social and financial ways is examined.

Design/methodology/approach

This study collected a total of 88 MFIs from Thailand and the Philippines for the years 2011 to 2017. The data envelopment analysis approach has been used to measure the MFIs’ efficiency level. Then, the ordinary least squares and generalised least square estimation methods serve to analyse the effects of economic freedom and other determinants on efficiency.

Findings

The results show that overall MFIs operate at an encouraging level. However, they were managerially inefficient when exploiting resources to achieve both social and financial efficiency. Therefore, MFIs should focus more on managerial operations to improve the level of efficiency. Results from panel regression analysis showed a mixed outcome for the relationship between economic freedom and MFIs’ efficiency both financially and socially. This suggested that different freedoms will result in different outcomes and significantly influence MFIs’ financial and social efficiency.

Originality/value

Regulatory efficiency and market openness are the vital aspects of economic freedom components that may significantly influence MFI’s performance specifically on social and financial efficiency. This study fills the research gap by examining the relationship between economic freedom components and specific MFIs’ social and financial efficiency, to ensure MFIs work to achieve sustainable development goals.

Keywords

Acknowledgements

The authors would like to give thanks to the editors and anonymous referees for their constructive comments and suggestions, which have significantly helped to improve the contents of the paper. Furthermore, special thanks to: Universiti Putra Malaysia Grant Putra Vot No 9632100 sponsored by Universiti Putra Malaysia; Fundamental Research Grant Scheme (FRGS) Vot No FRGS/1/2015/SS01/UPM/02/1 5524716 sponsored by Malaysian Ministry of Higher Education; Universiti Putra Malaysia Grant IPM Vot No 9473700 sponsored by Universiti Putra Malaysia; Universiti Putra Malaysia Grant IPS Vot No. 9651500 sponsored by Universiti Putra Malaysia; University Grant Phase 1/2017 research code (PPP/FEM/0117/051000/11917) sponsored by Universiti Sains Islam Malaysia; University Grant Phase 2/2017 research code (PPP/FEM/0217/051000/10218) sponsored by Universiti Sains Islam Malaysia; USIM/YTI/FEM052002/41118 sponsored by Yayasan Tun Ismail Mohamed Ali Berdaftar (YTI) Permodalan Nasional Berhad (PNB); Fundamental Research Grant Scheme (FRGS) RMI File No: 600-IRMI/FRGS 5/3 (141/2019) sponsored by Malaysian Ministry of Higher Education; and Universiti Teknologi MARA. All these organisations funded our research. The usual caveats apply.

Citation

Mohamad Anwar, N.A., Iqbal Hussain, H., Kamarudin, F., Sufian, F., Zainal, N. and Wong, C.M. (2021), "Impact of regulatory efficiency and market openness to social and financial efficiency: empirical evidence from microfinance institutions", Society and Business Review, Vol. 16 No. 3, pp. 374-397. https://doi.org/10.1108/SBR-04-2020-0056

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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