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Scale economies and input price elasticities in microfinance institutions

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  • Hartarska, Valentina
  • Shen, Xuan
  • Mersland, Roy

Abstract

We evaluate the efficiency of microfinance institutions (MFIs) using a structural approach which also captures these institutions’ outreach and sustainability objectives. We estimate economies of scale and input price elasticities for lending-only and deposit-mobilizing MFIs using a large sample of high-quality panel data. The results confirm conjectures that improvements in efficiency can come from the growth or consolidations of MFIs, as we find substantial increasing returns to scale for all but profitability-focused deposit-mobilizing MFIs. Our results support the existence of a trade-off between outreach and sustainability. All inputs are inelastic substitutes, but we find differences in own-price elasticities in lending-only and deposit-mobilizing MFIs.

Suggested Citation

  • Hartarska, Valentina & Shen, Xuan & Mersland, Roy, 2013. "Scale economies and input price elasticities in microfinance institutions," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 118-131.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:1:p:118-131
    DOI: 10.1016/j.jbankfin.2012.08.004
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    Citations

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    Cited by:

    1. Daudi Pascal & Leif Atle Beisland & Roy Mersland, 2016. "The origin of CEOs and its influence on microfinance performance and risk-taking," Working Papers CEB 16-046, ULB -- Universite Libre de Bruxelles.
    2. Tchakoute Tchuigoua, Hubert, 2016. "Buffer capital in microfinance institutions," Journal of Business Research, Elsevier, vol. 69(9), pages 3523-3537.
    3. repec:spr:soinre:v:132:y:2017:i:2:d:10.1007_s11205-016-1315-4 is not listed on IDEAS
    4. Islam, Asadul & Nguyen, Chau & Smyth, Russell, 2015. "Does microfinance change informal lending in village economies? Evidence from Bangladesh," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 141-156.
    5. repec:taf:oabmxx:v:3:y:2016:i:1:p:1154257 is not listed on IDEAS
    6. Md Aslam Mia & Shamima Nasrin & Zhang Cheng, 2016. "Quality, quantity and financial sustainability of microfinance: Does resource allocation matter?," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(3), pages 1285-1298, May.
    7. D’Espallier, Bert & Goedecke, Jann & Hudon, Marek & Mersland, Roy, 2017. "From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?," World Development, Elsevier, vol. 89(C), pages 19-33.
    8. Md Aslam Mia & V. G. R. Chandran, 2016. "Measuring Financial and Social Outreach Productivity of Microfinance Institutions in Bangladesh," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 505-527, June.
    9. Patrick Reichert, 2016. "A meta-analysis examining the nature of trade-offs in microfinance," Working Papers CEB 16-005, ULB -- Universite Libre de Bruxelles.
    10. Giovanna Aguilar, 2016. " Competencia en el mercado de microcréditos peruano, una medición utilizando el Indicador de Boone," Documentos de Trabajo / Working Papers 2016-417, Departamento de Economía - Pontificia Universidad Católica del Perú.
    11. Janda, Karel & Zetek, Pavel, 2014. "Mikrofinanční Revoluce: Aktuální Kontroverze A Výzvy
      [Microfinance Revolution: Recent Controversies And Challenges]
      ," MPRA Paper 54098, University Library of Munich, Germany.
    12. repec:bla:afrdev:v:29:y:2017:i:1:p:16-27 is not listed on IDEAS
    13. repec:eee:finlet:v:22:y:2017:i:c:p:81-89 is not listed on IDEAS
    14. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
    15. repec:eee:jbfina:v:85:y:2017:i:c:p:1-14 is not listed on IDEAS
    16. Mia, Md Aslam & Ben Soltane, Bassem Ibrahim, 2016. "Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 32-45.
    17. repec:kap:sbusec:v:49:y:2017:i:2:d:10.1007_s11187-016-9824-8 is not listed on IDEAS

    More about this item

    Keywords

    Microfinance; Efficiency; Input price elasticity; Scale economies; Microfinance institutions;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F30 - International Economics - - International Finance - - - General

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