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Measuring the Performance of Microfinancing Institutions: A New Approach

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  • Gemunu Nanayakkara

Abstract

Microfinancing Institutions (MFIs) have grown in popularity as an effective tool for reducing poverty in the developing countries over the last three decades. MFIs are different from traditional financial institutions like banks in many ways. They mainly provide financial assistance (usually without any security) to the needy poor who are denied access to institutional credit from other sources. Data relating to 2007 has shown that there are more than 3,000 MFIs operating around the world. Hundreds of millions of dollars of donor funds are injected into the microfinancing sector. Therefore, the ‘performance’ of MFIs which affect the effective and efficient utilization of these funds is an important issue. Standard criteria used to measure the performance of commercial enterprises such as profitability, return on investment, share price, etc., are not appropriate to assess the performance of MFIs which have fundamentally different objectives that conflict with commercial interests. This article analyzes the issues relating to criteria used for identifying the performance of MFIs and recommends a new approach to measure the performance of MFIs in an objective manner. JEL: G21

Suggested Citation

  • Gemunu Nanayakkara, 2012. "Measuring the Performance of Microfinancing Institutions: A New Approach," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 13(1), pages 85-104, March.
    • Handle: RePEc:sae:soueco:v:13:y:2012:i:1:p:85-104
    DOI: 10.1177/139156141101300105
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    References listed on IDEAS

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    1. World Bank, 2009. "The World Bank Annual Report 2009," World Bank Publications - Books, The World Bank Group, number 4354, December.
    2. World Bank, 2009. "The World Bank Annual Report 2009," World Bank Publications - Books, The World Bank Group, number 4356, December.
    3. Yaron, J., 1992. "Assessing Development Finance Institutions; A Public Interest Analysis," World Bank - Discussion Papers 174, World Bank.
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    Cited by:

    1. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    2. Gemunu Nanayakkara & Lokman Mia, 2016. "Does product diversification and emphasis on profitability in microfinancing alleviate poverty?," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 23(1), pages 21-56, June.

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    More about this item

    Keywords

    Microfinancing; microfinancing institutions; performance measurement;
    All these keywords.

    JEL classification:

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

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