IDEAS home Printed from https://ideas.repec.org/a/sae/iimkoz/v10y2021i1p31-43.html
   My bibliography  Save this article

Social and Financial Efficiency: A Study of Indian Microfinance Institutions

Author

Listed:
  • Swati Chauhan

Abstract

Microfinance institutions (MFIs) provides savings, credit, insurance and remittance facilities to more impoverished people without any collateral. MFIs have twin goals: social outreach and financial sustainability. Outreach refers to how many people are served by MFIs while the capacity of MFIs to serve longer is financial sustainability. The social and financial performance of MFIs is the most debatable issue in the Indian microfinance industry. Social efficiency indicates MFIs’ willingness to support a higher number of poorer consumers while financial efficiency indicates how long financial services can be offered to the poor by institutions. The success of these organizations is very critical for the continuity of funding support for donor agencies and the government. Using data envelopment analysis (DEA) techniques this paper calculates the efficiency of Indian NGO–MFIs. The research also uses Tobit regression to estimate the factors of the efficiency of MFIs. The data is taken from the Microfinance Information Exchange for the period 2009 to 2015. Results indicate that NGO–MFIs are financially more efficient than social ones. Regression findings show that the critical variable for the financial and social efficiency of NGO–MFIs is operational self-sufficiency (OSS). Very few empirical studies are available in the Indian context that discuss the efficiency of Indian NGO–MFIs. The present paper provides standards for performance measures of NGO–MFIs operating in India to assist in improving the performance and growth of microfinance firms.

Suggested Citation

  • Swati Chauhan, 2021. "Social and Financial Efficiency: A Study of Indian Microfinance Institutions," IIM Kozhikode Society & Management Review, , vol. 10(1), pages 31-43, January.
    • Handle: RePEc:sae:iimkoz:v:10:y:2021:i:1:p:31-43
    DOI: 10.1177/2277975220953311
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/2277975220953311
    Download Restriction: no
    File URL: https://libkey.io/10.1177/2277975220953311?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. World Bank, 2013. "The World Bank Annual Report 2013," World Bank Publications - Books, The World Bank Group, number 16091.
    2. Pal, Debdatta, 2010. "Measuring Technical Efficiency of Microfinance Institutions in India," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 65(4), pages 1-19.
    3. Avkiran, Necmi K., 2001. "Investigating technical and scale efficiencies of Australian Universities through data envelopment analysis," Socio-Economic Planning Sciences, Elsevier, vol. 35(1), pages 57-80, March.
    4. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    5. Douglas D. Evanoff & Philip R. Israilevich, 1991. "Productive efficiency in banking," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 15(Jul), pages 11-32.
    6. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    7. Nitin Kumar & Rudra Sensarma, 2017. "Efficiency of Microfinance Institutions in India: A Stochastic Distance Function Approach," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 16(2), pages 151-168, August.
    8. Maxime LEBOVICS & Niels HERMES & Marek HUDON, 2016. "Are Financial And Social Efficiency Mutually Exclusive? A Case Study Of Vietnamese Microfinance Institutions," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 87(1), pages 55-77, December.
    9. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-vega, Claudio & Rodriguez-meza, Jorge, 2000. "Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia," World Development, Elsevier, vol. 28(2), pages 333-346, February.
    10. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    11. Hermes, Niels & Lensink, Robert & Meesters, Aljar, 2011. "Outreach and Efficiency of Microfinance Institutions," World Development, Elsevier, vol. 39(6), pages 938-948, June.
    12. Surender Singh & S. K. Goyal & Supran Kumar Sharma, 2013. "Technical efficiency and its determinants in microfinance institutions in India: a firm level analysis," Journal of Innovation Economics, De Boeck Université, vol. 0(1), pages 15-31.
    13. M. Kabir Hassan & Benito Sanchez, 2007. "Efficiency Determinants and Dynamic Efficiency Changes in Latin American Banking Industries," NFI Working Papers 2007-WP-32, Indiana State University, Scott College of Business, Networks Financial Institute.
    14. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
    15. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    16. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    17. B Gutiérrez-Nieto & C Serrano-Cinca & C Mar Molinero, 2009. "Social efficiency in microfinance institutions," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(1), pages 104-119, January.
    18. Julia Paxton, 2007. "Technical Efficiency in a Semi‐Formal Financial Sector: The Case of Mexico," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(1), pages 57-74, February.
    19. Louis, Philippe & Seret, Alex & Baesens, Bart, 2013. "Financial Efficiency and Social Impact of Microfinance Institutions Using Self-Organizing Maps," World Development, Elsevier, vol. 46(C), pages 197-210.
    20. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
    21. J. David Cummins & Mary A. Weiss, 1998. "Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency Methods," Center for Financial Institutions Working Papers 98-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
    22. Golany, B & Roll, Y, 1989. "An application procedure for DEA," Omega, Elsevier, vol. 17(3), pages 237-250.
    23. Mamiza Haq & Michael Skully & Shams Pathan, 2010. "Efficiency of Microfinance Institutions: A Data Envelopment Analysis," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(1), pages 63-97, March.
    24. Fall, François & Akim, Al-mouksit & Wassongma, Harouna, 2018. "DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis," World Development, Elsevier, vol. 107(C), pages 176-188.
    25. George Anayiotos & Hovhannes Toroyan & Athanasios Vamvakidis, 2010. "The efficiency of emerging Europe’s banking sector before and after the recent economic crisis," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 247-267.
    26. Joseph Nzongang & Eloge Nishimikijimana, 2013. "Social and Financial Performance of Microfinance Institutions: A Multi-stage Data Envelopment Analysis Application," Palgrave Macmillan Books, in: Ronny Manos & Jean-Pierre Gueyié & Jacob Yaron (ed.), Promoting Microfinance, chapter 8, pages 148-169, Palgrave Macmillan.
    27. Imène Berguiga & Yosra Said & Philippe Adair, 2017. "The social and financial performance of Microfinance institutions in the MENA region: Do Islamic institutions perform better?," Post-Print hal-01667406, HAL.
    28. Servin, Roselia & Lensink, Robert & van den Berg, Marrit, 2012. "Ownership and technical efficiency of microfinance institutions: Empirical evidence from Latin America," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2136-2144.
    29. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos & Mar Molinero, Cecilio, 2007. "Microfinance institutions and efficiency," Omega, Elsevier, vol. 35(2), pages 131-142, April.
    30. M. Kabir Hassan & Benito Sanchez, 2009. "Efficiency Analysis of Microfinance Institutions in Developing Countries," NFI Working Papers 2009-WP-12, Indiana State University, Scott College of Business, Networks Financial Institute.
    31. Ramachandran, Ramakrishnan & Senthil Kumar, T. S., 2006. "Micro finance," MPRA Paper 54548, University Library of Munich, Germany.
    32. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    33. Masood, Tariq & Ahmad, Mohd. Izhar, 2010. "Technical Efficiency of Microfinance Institutions in India- A Stochastic Frontier Approach," MPRA Paper 25454, University Library of Munich, Germany.
    34. Qayyum, Abdul & Ahmad, Munir, 2006. "Efficiency and Sustainability of Micro Finance," MPRA Paper 11674, University Library of Munich, Germany.
    35. Wijesiri, Mahinda & Viganò, Laura & Meoli, Michele, 2015. "Efficiency of microfinance institutions in Sri Lanka: a two-stage double bootstrap DEA approach," Economic Modelling, Elsevier, vol. 47(C), pages 74-83.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. José L. Fernández Sánchez & María D. Odriozola & Elisa Baraibar‐Diez, 2024. "How the method for delivering loans impacts on the economic efficiency of microfinance institutions," Global Policy, London School of Economics and Political Science, vol. 15(S1), pages 92-102, March.
    2. Md Aslam Mia & Lucia Dalla Pellegrina & Cheng Zhang & Sunil Sangwan, 2022. "Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence," IIM Kozhikode Society & Management Review, , vol. 11(2), pages 235-252, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fall, François & Akim, Al-mouksit & Wassongma, Harouna, 2018. "DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis," World Development, Elsevier, vol. 107(C), pages 176-188.
    2. Wijesiri, Mahinda & Yaron, Jacob & Meoli, Michele, 2017. "Assessing the financial and outreach efficiency of microfinance institutions: Do age and size matter?," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 63-76.
    3. Wijesiri, Mahinda & Yaron, Jacob & Meoli, Michele, 2015. "Performance of microfinance institutions in achieving the poverty outreach and financial sustainability: When age and size matter?," MPRA Paper 69821, University Library of Munich, Germany.
    4. Wijesiri, Mahinda & Viganò, Laura & Meoli, Michele, 2015. "Efficiency of microfinance institutions in Sri Lanka: a two-stage double bootstrap DEA approach," Economic Modelling, Elsevier, vol. 47(C), pages 74-83.
    5. Simon Cornée & Gervais Thenet, 2016. "Efficience des institutions de microfinance en Bolivie et au Pérou:une approche data envelopment analysis en deux étapes," Revue Finance Contrôle Stratégie, revues.org, vol. 19(1), pages 65-91, March.
    6. Li, Lin Yang & Hermes, Niels & Meesters, Aljar, 2019. "Convergence of the performance of microfinance institutions: A decomposition analysis," Economic Modelling, Elsevier, vol. 81(C), pages 308-324.
    7. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    8. Delaram Najmaei Lonbani & Bram De Rock, 2020. "The performance of microfinance institutions: An analysis of the local and legal constraints," Working Papers CEB 20-011, ULB -- Universite Libre de Bruxelles.
    9. Piot-Lepetit, Isabelle & Nzongang, Joseph, 2014. "Financial sustainability and poverty outreach within a network of village banks in Cameroon: A multi-DEA approach," European Journal of Operational Research, Elsevier, vol. 234(1), pages 319-330.
    10. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    11. Efendic Velid & Hadziahmetovic Nejra, 2017. "The social and financial efficiency of microfinance institutions: the case of Bosnia and Herzegovina," South East European Journal of Economics and Business, Sciendo, vol. 12(2), pages 85-101, December.
    12. Md Aslam Mia & V. G. R. Chandran, 2016. "Measuring Financial and Social Outreach Productivity of Microfinance Institutions in Bangladesh," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 505-527, June.
    13. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    14. Fall, F.S. & Tchakoute Tchuigoua, H. & Vanhems, A. & Simar, L., 2021. "Gender effect on microfinance social efficiency: A robust nonparametric approach," European Journal of Operational Research, Elsevier, vol. 295(2), pages 744-757.
    15. Wijesiri, Mahinda, 2016. "Weathering the storm: ownership structure and performance of microfinance institutions in the wake of the global financial crisis," Economic Modelling, Elsevier, vol. 57(C), pages 238-247.
    16. Yimga, Jules, 2018. "Microfinance expansion and its effects on cost efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 205-216.
    17. Debdatta Pal & Subrata K. Mitra, 2018. "The efficiency of microfinance institutions with problem loans: A directional distance function approach," Computational and Mathematical Organization Theory, Springer, vol. 24(3), pages 285-307, September.
    18. Maxime LEBOVICS & Niels HERMES & Marek HUDON, 2016. "Are Financial And Social Efficiency Mutually Exclusive? A Case Study Of Vietnamese Microfinance Institutions," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 87(1), pages 55-77, December.
    19. Girma Jirata Duguma & Jiqin Han, 2021. "Effect of deposit mobilization on the technical efficiency of rural saving and credit cooperatives: Evidence from Ethiopia," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(4), pages 621-647, December.
    20. 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.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:iimkoz:v:10:y:2021:i:1:p:31-43. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.