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Outreach and Efficiency of Microfinance Institutions

  • Hermes, Niels
  • Lensink, Robert
  • Meesters, Aljar

Summary This paper uses stochastic frontier analysis to examine whether there is a trade-off between outreach to the poor and efficiency of microfinance institutions (MFIs). We find convincing evidence that outreach is negatively related to efficiency of MFIs. More specifically, we find that MFIs that have a lower average loan balance (a measure of the depth of outreach) are also less efficient. Moreover, we find evidence showing that MFIs that have more women borrowers as clients (again a measure of the depth of outreach) are less efficient. These results remain robustly significant after having added a number of control variables.

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Article provided by Elsevier in its journal World Development.

Volume (Year): 39 (2011)
Issue (Month): 6 (June)
Pages: 938-948

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Handle: RePEc:eee:wdevel:v:39:y:2011:i:6:p:938-948
Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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  4. Lensink, Robert & Meesters, Aljar & Naaborg, Ilko, 2008. "Bank efficiency and foreign ownership: Do good institutions matter?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 834-844, May.
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  8. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
  9. Valentina Hartarska & Denis Nadolnyak, 2007. "Do regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidence," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1207-1222.
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  16. Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October.
  17. Craig McIntosh & Alain Janvry & Elisabeth Sadoulet, 2005. "How Rising Competition Among Microfinance Institutions Affects Incumbent Lenders," Economic Journal, Royal Economic Society, vol. 115(506), pages 987-1004, October.
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