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The Cost Structure Of Microfinance Institutions In Eastern Europe And Central Asia

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Author Info
Valentina Hartarska
Steven B. Caudill ()
Daniel M. Gropper ()

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Abstract

Microfinance institutions are important, particularly in developing countries, because they expand the frontier of financial intermediation by providing loans to those traditionally excluded from formal financial markets. This paper presents the first systematic statistical examination of the performance of MFIs operating in Eastern Europe and Central Asia. A cost function is estimated for MFIs in the region from 1999-2004. First, the presence of subsidies is found to be associated with higher MFI costs. When output is measured as the number of loans made, we find that MFIs become more efficient over time and that MFIs involved in the provision of group loans and loans to women have lower costs. However, when output is measured as volume of loans rather than their number, this last finding is reversed. This may be due to the fact that such loans are smaller in size; thus for a given volume more loans must be made.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number wp809.

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Date of creation: 01 Jan 2006
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Handle: RePEc:wdi:papers:2006-809

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Related research
Keywords: Eastern Europe; banking; microfinance; efficiency;

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Find related papers by JEL classification:
G20 - Financial Economics - - Financial Institutions and Services - - - General
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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