Assessment of Institutional Performance and Sustainability of Selected Microfinance Institutions: A Data Envelopment Analysis Approach
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Date
2011-06
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A.A.U
Abstract
In this study attempts are made to evaluate the institutional performance and
sustainability of six MFIs employing conventional financial performance and
sustainability indicators and non-parametric DEA-based malmquist total factor
productivity index model. The study period covered 2003 to 2009. DEA-based malmquist
total factor productivity index model is applied on panel data to derive total factor
productivity growth under both production and intermediation approach which could be
decomposed as technological change and technical efficiency change.
The results of conventional financial performance and sustainability indicators revealed
that all MFIs' outreach performance has increased during the study period. Despite the
increase in outreach performance, it is difficult for the institutions to operate and expand
without subsidies. This is reflected by their financial self-sufficiency ratios. During the
study period all most all MFIs in the sample reported below the minimum requirement
financial self-sufficiency ratio. This indicated the long-term sustainability of MFIs is in
question once the subsidies are dried-up. Respondents' response also confirmed that
grants are preferable as primary source of fund rather than retained earnings and member
saving
In the study the researcher identified that, technological change has higher value
relevance than technical efficiency gain. By decomposing technical efficiency the
researcher also observed pure technical efficiency gain has a substantially higher
explanatory power than scale efficiency gain.
The researcher also found that the intermediation services which is the responsibility of
the MFIs to transfer funds from surplus groups such as from savers and donors to the
deficit groups particularly borrowers or investors are more productive than the production
responsibility of MFIs which considers the institutions as producers of deposits and
loans. During the study period the institutions reported average productivity growth of
20.7% under both input and output oriented intermediation approach. In both cases the
shift in total factor productivity was observed due to technological progress. Under the
production approach in both input and output oriented measures an average productivity
deterioration of 5.3% was identified. This decline in productivity was the result of 5.6%
retrogresses in technology, though there was a marginal 0.4% gain in technical
efficiency.
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Keywords
Institutional Performance, Microfinance Institutions