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Social and financial performance of Islamic and conventional microfinance institutions: Comparative Study in Indonesia

Author

Listed:
  • Zaied, Maher
  • Maktouf, Samir

Abstract

The microfinance initiative has evolved over the past four decades, as important mechanisms for reducing poverty. There is strong evidence, however, to suggest that increasing their financial viability often hampers their ability to reach the poorest of the poor. This article aims to identify the degree of performance of Islamic and conventional microfinance institutions in Indonesia. To answer the problematic of our work, we also apply the methodology of Data Envelopment Analysis (DEA), linear analysis of the efficiency according to the non-parametric programming to evaluate the performance of the MFIs. Based on data collected from a follow-up of the 120 Indonesian MFIs over a quarterly period for five years, over the 2011-2015 period. The descriptive analysis of the different variables shows that IMFIs are on average relatively more financially inefficient than IMFCs. This result suggests that the inefficiency of Indonesian IMFI is more a result of pure technical inefficiency (management shortfalls related to the problem of under-equipment, quality of human resources) than inefficiency of scale. With regard to the central question that this study seeks to answer, which objective (social or financial) for Indonesian MFIs, the results suggest that they are primarily concerned with their social and financial objectives.

Suggested Citation

  • Zaied, Maher & Maktouf, Samir, 2019. "Social and financial performance of Islamic and conventional microfinance institutions: Comparative Study in Indonesia," MPRA Paper 98340, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:98340
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    File URL: https://mpra.ub.uni-muenchen.de/98340/1/MPRA_paper_98340.pdf
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    More about this item

    Keywords

    Islamic microfinance; financial performance; social performance; Indonesian Islamic rural bank; DEA;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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