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Productivity and Efficiency Analysis of Microfinance Institutions (MFIS) in Bangladesh

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  • Bairagi, Subir

Abstract

This paper estimates productivity and efficiency of ten major microfinance institutions (MFIs) in Bangladesh using the stochastic frontier output distance function approach. Cobb-Douglas specification is applied with two outputs and four inputs for the period 2003-2011. Analysis reveals that on an average the rate of total factor productivity (TFP) growth in MFIs was 2.6%, mostly due to technological progress (2.5%), while the average efficiency change was only 0.1%. The mean efficiency of microfinance firms was 0.765, which implies that MFIs could have produced 23.5% more with the current levels of input bundles if they had been fully efficient. The determinants of firms’ inefficiencies are cost per borrower and operational self-sufficiency, significant at the 1% level. The smaller MFIs (RDRS, Shakti, SSS, and JCF) define better frontiers than others, while bigger MFIs (BRAC, ASA, and GB) have been catching up faster than others.

Suggested Citation

  • Bairagi, Subir, 2014. "Productivity and Efficiency Analysis of Microfinance Institutions (MFIS) in Bangladesh," MPRA Paper 67917, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:67917
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    References listed on IDEAS

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    More about this item

    Keywords

    Stochastic frontier output distance; total factor productivity (TFP); microfinance institutions (MFIs);
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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