Efficiency and Technology Gap Ratio of Lending Performance of Micro-credit Institutions in Thailand: The Meta-frontier Analysis

Many types of state initiated micro-credit institution have been established in Thailand with the primary principle of extending low cost loans to low income individuals so as to eventually help improve their quality of life. However, these micro-credit institutions still have varying degree of operational drawbacks from the absence of supportive structure to ensure organizational sustainability and the lack of efficient and effective credit management systems as they have to function under the framework of specific act by which they are institutionalized. The present endeavor employed meta-frontier concept for determining technology gap ratio and lending efficiency of microcredit institutions operating under different organizational rules and regulations as well as credit management methods with the focus on agricultural cooperatives (AC), village funds (VF), and production-oriented savings groups (PSG). The needed data were collected from 600 samples of such micro-credit organizations. Meta-frontier efficiency scores were found to be different at 0.01 statistically significant level. The group having the highest average score of efficiency is agricultural cooperative (0.6116), followed by village fund (0.4370) and production-oriented savings group (0.4119), respectively. In terms of technology gap ratio, there are differences at 0.01 statistically significant level. The agricultural cooperative group has the highest score at 94.71% whereas the village fund group has the lowest score, 60.93%. The technology gap is a function of optimal group size and different lending systems, i.e., the agricultural cooperatives give on loans under the amount of share capital constraint but the village funds allocate credit for each borrower equally. The findings of this study have led to a recommendation concerning the increase in optimal group size, especially to sub-district level, because size and operational environment can contribute to efficiency enhancement. Moreover, government agencies should change their roles from providing funds to promoting community self-reliance.