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Practice What You Preach: Microfinance Business Models and Operational Efficiency

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  • Bos, Jaap W.B.
  • Millone, Matteo

Abstract

The microfinance sector has room for pure for-profit microfinance institutions (MFIs), non-profit organizations, and “social” for-profit firms that aim to pursue a double bottom line. Depending on their business model, these institutions target different types of borrowers, change the size of their loans and adjust their loan pricing. We introduce a simple approach that accommodates a wide range of business models and allows us to estimate the operational efficiency of MFIs. Our empirical results show that MFIs with a high depth of outreach are most efficient, resulting in higher levels of outreach and profits for the same input mix.

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  • Bos, Jaap W.B. & Millone, Matteo, 2015. "Practice What You Preach: Microfinance Business Models and Operational Efficiency," World Development, Elsevier, vol. 70(C), pages 28-42.
    • Handle: RePEc:eee:wdevel:v:70:y:2015:i:c:p:28-42
    DOI: 10.1016/j.worlddev.2014.12.018
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    More about this item

    Keywords

    microfinance; output distance function; outreach; efficiency; global;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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