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Microfinance Institutions’ Efficiency and its Determinants: Evidence from India

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  • Amit Kumar Bardhan
  • Barnali Nag
  • Chandra Sekhar Mishra

Abstract

This study evaluates the financial and social efficiency of Indian Microfinance Institutions (MFIs) from 2005 to 2018 and also tries to find out the determinants of financial and social efficiency. In the first step, bias-corrected bootstrap Data Envelopment Analysis (DEA) efficiency scores for financial and social efficiency were calculated using two input and two output variables. In the second step of analysis above efficiency scores have been used as dependent variables and Seemingly Unrelated Regression (SUR) model is employed to ascertain the determinants of financial and social efficiency of Indian MFIs. The study finds that the aggregate financial efficiency of Indian MFIs is higher than the social efficiency. Over the study period, efficiency of Indian MFIs shows an increasing trend. Results of SUR suggest that as compared to Non-Banking Finance Company (NBFC) MFIs, Non-NBFC MFIs’ financial and social efficiency is better. Influence of age, scale of loan portfolio, asset quality and financial leverage on efficiency of MFIs are insignificant. This study also finds that asset size of the firm is positively associated with efficiency. Evidence from this study suggests that reform measures taken post microfinance crises has negatively affected the financial efficiency. However, social efficiency has improved during post reform period. JEL Codes: G21, C33

Suggested Citation

  • Amit Kumar Bardhan & Barnali Nag & Chandra Sekhar Mishra, 2023. "Microfinance Institutions’ Efficiency and its Determinants: Evidence from India," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 24(2), pages 109-136, September.
    • Handle: RePEc:sae:soueco:v:24:y:2023:i:2:p:109-136
    DOI: 10.1177/13915614231179527
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    Keywords

    Microfinance; efficiency; India; bootstrap DEA; SUR;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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