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Cost efficiency and gender diversity in microfinance: A stochastic frontier approach

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  • Al-Azzam, Moh’d
  • Bernstein, David H.
  • Parmeter, Christopher F.

Abstract

Cost efficiency in microfinance reveals whether microfinance institutions (MFIs) can serve the vulnerable sustainably or survive by relying on subsidies or passing inefficiencies to clients. As MFIs strive for sustainability, the role of gender — where women make up the majority of borrowers and more than one-third of MFIs’ employees — remains central to understanding efficiency. Using data from 1507 MFIs in 111 countries (2010–2018), we apply cutting-edge panel stochastic frontier models to assess global efficiency trends and the roles of women as borrowers and employees. We find that global efficiency declined, especially among larger MFIs, despite increasing returns to scale. MFIs that serve more women or hire more loan officers are associated with more inefficiencies. The effect of other women employees varies by role and profit orientation. Women in leadership improve efficiency in nonprofits but reduce it in for-profit MFIs, whereas female staff improve efficiency only in for-profit MFIs. These findings call for more targeted gender strategies to enhance inclusion and sustainability.

Suggested Citation

  • Al-Azzam, Moh’d & Bernstein, David H. & Parmeter, Christopher F., 2026. "Cost efficiency and gender diversity in microfinance: A stochastic frontier approach," Economic Modelling, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:ecmode:v:156:y:2026:i:c:s0264999326000027
    DOI: 10.1016/j.econmod.2026.107473
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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