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Technological Change and Innovations in Microfinance Institutions: What Matters?

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  • Md Aslam Mia

Abstract

Usage of technology that serves to improve organizational efficiency among financial service providers has substantially increased during the past decade. Similarly, a large number of microfinance institutions (MFIs) have incorporated technological innovation in their operations to provide clients with better financial services. To understand the determinants of technological change in MFIs, this study investigated various factors, including sources of funds, institutional characteristics (IC) and macroeconomic factors. Using longitudinal data (2009–2014) from the microfinance industry in Bangladesh, this study estimated the Malmquist Productivity Index (non-parametric) to decompose the technological change at the first stage. This index was then used as a dependent variable in the second stage to regress against certain independent variables. Overall, it was found that the microfinance industry in Bangladesh observed regression in technological change; however, technological change could be improved by promoting peer borrowing among MFIs. Apart from that, greater autonomy through decentralization of MFI branches could also stimulate technological progress. Interestingly, MFIs located in Dhaka have experienced better technological progress than MFIs located in other parts of the country, which signifies the importance of location. Additionally, the findings also revealed a gap in transfer of technological knowledge from commercial banks to the MFIs that they fund.

Suggested Citation

  • Md Aslam Mia, 2023. "Technological Change and Innovations in Microfinance Institutions: What Matters?," Global Business Review, International Management Institute, vol. 24(6), pages 1454-1467, December.
    • Handle: RePEc:sae:globus:v:24:y:2023:i:6:p:1454-1467
    DOI: 10.1177/0972150920927368
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    References listed on IDEAS

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