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Efficiency and Sustainability of Micro Finance

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  • Qayyum, Abdul
  • Ahmad, Munir

Abstract

The objective of this study has been to estimate the efficiency and sustainability of microfinance institution working in the South Asian countries such as Bangladesh, Pakistan and India. For the efficiency analysis we used non parametric Data Envelopment Analysis. We considered both inputs oriented and output oriented methods by assuming constant returns to scale and variable returns to scale technologies. While conducting DEA analysis using single country data we found that eight MFIs from Pakistan, six MFIs from Bangladesh and five MFIs from India are at the efficient frontier under variable returns to scale. The technical efficiency figures for Pakistan, Bangladesh and India are 0.395, 0.087, and 0.28, respectively, while average pure technical efficiencies for these countries respectively range between 0.713-0.823, 0.175-0.547 and 0.413-0.452. Three countries combine analysis revealed that there are two efficient MFIs under CRS and five efficient MFIs under VRS assumption in these countries. Out of these efficient MFIs three -Annesa, BARC and Grameen Bank, belong to Bangladesh, and two MFIs - Bodhana and Pushtikar, are from India. No MFI from Pakistan was found operating on the efficient frontier. The analysis further reveals that the inefficiencies of MFIs in Pakistan, India and Bangladesd are mainly of technical nature. The results have an important policy implication that in order to improve the efficiency of the MFIs there is need to enhance the managerial skills and improve technology. This could be done by imparting training. Since Grameen bank is the leading MFIs in the world we can adopt its model according to the country specific requirements. Particularly, the lagging countries like Pakistan and India require special training programmes in the field of microfinance management.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11674.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:11674

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Keywords: microfinance institution (MFI); efficiency; Data Envelopment Analysis; Bangladesh; Pakistan; India; South Asia;

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References

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Citations

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Cited by:
  1. Kalbe Abbas & Manzoor Hussain Malik, 2010. "Impact of Financial Liberalisation and Deregulation on Banking Sector in Pakistan," Finance Working Papers 23068, East Asian Bureau of Economic Research.
  2. Ben Bassem, 2008. "Efficiency of Microfinance Institutions in the Mediterranean: An Application of DEA," Transition Studies Review, Springer, Springer, vol. 15(2), pages 343-354, September.
  3. M Nadiya & Francisco Olivares-Polanco & T Radha Ramanan, 2012. "Dangers in Mismanaging the Factors Affecting the Operational Self-Sustainability (OSS) of Indian Microfinance Institutions (MFIs) - An Exploration into Indian Microfinance Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, Asian Economic and Social Society, vol. 2(3), pages 448-462, July.
  4. Ahmad, Usman, 2011. "Efficiency Analysis of Micro-finance Institutions in Pakistan," MPRA Paper 34215, University Library of Munich, Germany.
  5. M. Kabir Hassan & Benito Sanchez & Geoffrey Ngene, 2012. "Scales and technical efficiencies in Middle East and North African (MENA) micro financial institutions," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, Emerald Group Publishing, vol. 5(2), pages 157-170, June.

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