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Microfinance institutions and efficiency

  • Gutiérrez-Nieto, Begoña
  • Serrano-Cinca, Carlos
  • Mar Molinero, Cecilio

Microfinance Institutions (MFIs) are special financial institutions. They have both a social nature and a for-profit nature. Their performance has been traditionally measured by means of financial ratios. The paper goes beyond simple financial ratios using a data envelopment analysis (DEA) approach to measure the efficiency of MFIs. Special care is taken in the specification of the DEA model. We take a methodological approach based on multivariate analysis. We rank DEA efficiencies under different models and specifications; e.g. particular sets of inputs and outputs. This serves to explore what is behind a DEA score. The results show that we can explain MFIs efficiency by means of four principal components of efficiency, and this way we are able to understand differences between DEA scores. It is shown that there are country effects on efficiency; and effects that depend on non-governmental organization (NGO)/non-NGO status of the MFI.

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Article provided by Elsevier in its journal Omega.

Volume (Year): 35 (2007)
Issue (Month): 2 (April)
Pages: 131-142

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Handle: RePEc:eee:jomega:v:35:y:2007:i:2:p:131-142
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  1. Berger, Allen N. & Humphrey, David B., 1991. "The dominance of inefficiencies over scale and product mix economies in banking," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 117-148, August.
  2. Aidan Hollis & Arthur Sweetman, 1997. "Microcredit in Pre-Famine Ireland," Economic History 9704002, EconWPA.
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  9. repec:idb:brikps:46838 is not listed on IDEAS
  10. Andreas Soteriou & Stavros A. Zenios, 1999. "Operations, Quality, and Profitability in the Provision of Banking Services," Management Science, INFORMS, vol. 45(9), pages 1221-1238, September.
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  13. Jose Pastor, 1999. "Efficiency and risk management in Spanish banking: a method to decompose risk," Applied Financial Economics, Taylor & Francis Journals, vol. 9(4), pages 371-384.
  14. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
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