Productivity and Efficiency Analysis of Microfinance Institutions (MFIS) in Bangladesh

Bairagi, Subir (2014): Productivity and Efficiency Analysis of Microfinance Institutions (MFIS) in Bangladesh.

Abstract

This paper estimates productivity and efficiency of ten major microfinance institutions (MFIs) in Bangladesh using the stochastic frontier output distance function approach. Cobb-Douglas specification is applied with two outputs and four inputs for the period 2003-2011. Analysis reveals that on an average the rate of total factor productivity (TFP) growth in MFIs was 2.6%, mostly due to technological progress (2.5%), while the average efficiency change was only 0.1%. The mean efficiency of microfinance firms was 0.765, which implies that MFIs could have produced 23.5% more with the current levels of input bundles if they had been fully efficient. The determinants of firms’ inefficiencies are cost per borrower and operational self-sufficiency, significant at the 1% level. The smaller MFIs (RDRS, Shakti, SSS, and JCF) define better frontiers than others, while bigger MFIs (BRAC, ASA, and GB) have been catching up faster than others.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stochastic frontier output distance, total factor productivity (TFP), microfinance institutions (MFIs)
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q14 - Agricultural Finance

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