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

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

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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.

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