Skip to main content
SpringerLink
Log in

Social efficiency in microfinance institutions

  • Theoretical Paper
  • Published:
Journal of the Operational Research Society

Abstract

Microfinance institutions (MFIs) are a special case in the financial world. They have a double financial and social role and need to be efficient at both. In this paper, we try to measure the efficiency of MFIs in relation to financial and social outputs using data envelopment analysis. For the analysis of financial efficiency, we rely on existing literature for traditional financial institutions. To this we have added two indicators of social performance: impact on women and a poverty reach index. We have studied the relationship between social and financial efficiency, and the relationship between efficiency and other indicators, such as profitability. Other aspects studied are the relation between social efficiency and type of institution—Non-Governmental Organization (NGO)—, non-NGO, and the importance of geographical region of activity. The results reveal the importance of social efficiency assessment.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2

Similar content being viewed by others

References

  • Adams DW and Von Pischke JD (1992). Microenterprise credit programs: Déjà vu. World Dev 20: 1463–1470.

    Article  Google Scholar 

  • Amel D, Barnes C, Panetta F and Salleo C (2004). Consolidation and efficiency in the financial sector: A review of the international evidence. J Banking Finance 28: 2493–2519.

    Article  Google Scholar 

  • Amin R, Ahmed AU, Chowdhury J and Ahmed M (1994). Poor women's participation in income-generating projects and their fertility regulation in rural Bangladesh: Evidence from a recent survey. World Dev 22: 555–565.

    Article  Google Scholar 

  • Athanassopoulos AD (1997). Service quality and operating efficiency synergies for management control in the provision of financial services: Evidence from Greek bank branches. Eur J Opl Res 98: 300–313.

    Article  Google Scholar 

  • Berger AN and Humphrey DB (1997). Efficiency of financial institutions: International survey and directions for future research. Eur J Opl Res 98: 175–212.

    Article  Google Scholar 

  • Camanho AS and Dyson RG (2005). Cost efficiency, production and value-added models in the analysis of bank branch performance. J Opl Res Soc 56: 483–494.

    Article  Google Scholar 

  • Canhoto A and Dermine J (2003). A note on banking efficiency in Portugal, New vs. Old banks. J Banking Finance 27: 2087–2098.

    Article  Google Scholar 

  • Charnes A, Cooper WW and Rhodes E (1978). Measuring the efficiency of decision making units. Eur J Opl Res 2: 429–444.

    Article  Google Scholar 

  • CGAP (2003). Microfinance Consensus Guidelines. Definitions of Selected Financial Terms, Ratios and Adjustments for Microfinance, 3rd edn. Consultative Group to Assist the Poorest: Washington, DC, USA.

  • Conning J (1999). Outreach, sustainability and leverage in monitored and peer-monitored lending. J Dev Econ 60: 51–77.

    Article  Google Scholar 

  • Copestake J, Bhalotra S and Johnson S (2001). Assessing the impact of microcredit: A Zambian case study. J Dev Stud 37: 81–100.

    Article  Google Scholar 

  • Daley-Harris S (2004). State of the Microcredit Summit Campaign Report 2004. Microcredit Summit Campaign: Washington, DC, USA.

    Google Scholar 

  • Dichter TW (1996). Questioning the future of NGOs in microfinance. J Int Dev 8: 259–269.

    Article  Google Scholar 

  • Dunford C (2000). The holy grail of microfinance: ‘Helping the poor' and ‘sustainable'? Small Enterprise Dev 11: 40–44.

    Article  Google Scholar 

  • Goddard J, Molyneux P and Wilson JOS (2004). Dynamics of growth and profitability in banking. J Money Credit Banking 36: 1069–1090.

    Article  Google Scholar 

  • Goetz AM and Gupta RS (1996). Who takes the credit? Gender, power and control over loan use in rural credit programmes in Bangladesh. World Dev 24: 45–63.

    Article  Google Scholar 

  • Gutiérrez-Nieto B, Serrano-Cinca C and Mar Molinero C (2007). Microfinance institutions and efficiency. Omega Int J Mngt Sci 35: 131–142.

    Article  Google Scholar 

  • Gutiérrez-Nieto B, Serrano-Cinca C . (2007). ‘Factors explaining the rating of microfinance institutions'. Nonprofit Voluntary Sector Quart 36: 439–464.

  • Hartarska V (2005). Governance and performance of microfinance institutions in central and eastern Europe and the newly independent states. World Dev 33: 1627–1643.

    Article  Google Scholar 

  • Hashemi SM, Schuler SR and Riley AP (1996). Rural credit programs and women's empowerment in Bangladesh. World Dev 24: 635–653.

    Article  Google Scholar 

  • Hulme D (2000). Impact assessment methodologies for microfinance: Theory, experience and better practice. World Dev 28: 79–98.

    Article  Google Scholar 

  • Hulme D, Mosley P (1996). Finance against Poverty, 2 Vols. Routledge: London.

    Google Scholar 

  • Karim MR and Osada M (1998). Dropping out: An emerging factor in the success of microcredit-based poverty alleviation programs. Dev Econ 36: 257–288.

    Article  Google Scholar 

  • Luo X (2003). Evaluating the profitability and marketability efficiency of large banks. An application of data envelopment analysis. J Bus Res 56: 627–635.

    Article  Google Scholar 

  • Mahmud S (2003). Actually how empowering is microcredit? Dev Change 34: 577–605.

    Article  Google Scholar 

  • Matin I, Hulme D and Rutherford S (2002). Finance for the poor: From microcredit to microfinancial services. J Int Dev 14: 273–294.

    Article  Google Scholar 

  • Mixmarket (2007). The Microfinance Information eXchange (MIX). http://www.mixmarket.org/en/what.is.mix.asp, accessed 8 June 2007.

  • Morduch J (1999a). The microfinance promise. J Econ Lit 37: 1569–1614.

    Article  Google Scholar 

  • Morduch J (1999b). The role of subsidies in microfinance: Evidence from the Grameen Bank. J Dev Econ 60: 229–248.

    Article  Google Scholar 

  • Morduch J (2000). The microfinance schism. World Dev 28: 617–629.

    Article  Google Scholar 

  • Mosley P (2001). Microfinance and poverty in Bolivia. J Dev Stud 37: 101–132.

    Article  Google Scholar 

  • Navajas S, Schreiner M, Meyer RL, González-Vega C and Rodríguez-Meza J (2000). Microcredit and the poorest of the poor: Theory and evidence from Bolivia. World Dev 28: 333–346.

    Article  Google Scholar 

  • Oral M and Yolalan R (1990). An empirical study on measuring operating efficiency and profitability of bank branches. Eur J Opl Res 46: 282–294.

    Article  Google Scholar 

  • Parsons LM (2003). Is accounting information from nonprofit organizations useful to donors? A review of charitable giving and value-relevance. J Account Lit 22: 104–129.

    Google Scholar 

  • Pastor JM (1999). Efficiency and risk management in Spanish banking: A method to decompose risk. Appl Finan Econ 9: 371–384.

    Article  Google Scholar 

  • Rankin KN (2001). Governing development: Neoliberalism, microcredit, and rational economic woman. Econ Soc 30: 18–37.

    Article  Google Scholar 

  • Sealey CW and Lindley JT (1977). Inputs, outputs and a theory of production and cost at depository financial institutions. J Finance 32: 1251–1266.

    Article  Google Scholar 

  • Seiford LM and Zhu J (1999). Profitability and marketability of the top 55 U.S. commercial banks. Mngt Sci 45: 1270–1288.

    Article  Google Scholar 

  • Sherman HD and Gold F (1985). Bank branch operating efficiency: Evaluation with data envelopment analysis. J Banking Finance 9: 297–315.

    Article  Google Scholar 

  • Smith SC (2002). Village banking and maternal and child health: Evidence from Ecuador and Honduras. World Dev 30: 707–723.

    Article  Google Scholar 

  • Soteriou A and Zenios SA (1999). Operations, quality and profitability in the provision of banking services. Mngt Sci 45: 1221–1238.

    Article  Google Scholar 

  • SPI (2002). Social Performance Indicators for the Financial Industry. http://www.spifinance.com/SPI_Finance_2002.pdf, accessed 8 June 2007.

  • Tucker M (2001). Financial performance of selected microfinance institutions. J Microfinance 3: 107–123.

    Google Scholar 

  • Tulkens H (1993). On FDH efficiency analysis: Some methodological issues and applications to retail banking, courts and urban transit. J Productiv Anal 4: 183–210.

    Article  Google Scholar 

  • Vassiloglou M and Giokas D (1999). A study of the relative efficiency of bank branches: An application of data envelopment analysis. J Opl Res Soc 41: 591–597.

    Article  Google Scholar 

  • Wheelock D and Wilson PW (1999). Technical progress, inefficiency, and productivity change in US banking, 1984–1993. J Money Credit Banking 31: 212–234.

    Article  Google Scholar 

  • Woller GM, Dunford C and Woodworth W (1999). Where to microfinance? Int J Econ Dev 1: 29–64.

    Google Scholar 

  • Yaron J (1994). What makes rural finance institutions successful? The World Bank Res Observer 9: 49–70.

    Article  Google Scholar 

  • Zeller M, Sharma M, Henry C and Lapenu C (2002). An operational tool for evaluating poverty outreach of development policies and projects. In: Zeller M and Meyer RL (eds). The Triangle of Microfinance 2002. John Hopkins University Press: Baltimore and London, pp. 172–195.

    Google Scholar 

Download references

Acknowledgements

The work reported in this paper was supported by Grant SEJ2004-04748/ECON of the Spanish Ministry of Education and Science, and the European Regional Development Fund (ERDF) under the title ‘Management Efficiency of the Socially Responsible Investment organizations’.

Author information

Authors and Affiliations

  1. Universidad de Zaragoza, Saragossa, Spain

    B Gutiérrez-Nieto & C Serrano-Cinca

  2. University of Kent, Canterbury, UK

    C Mar Molinero

Authors
  1. B Gutiérrez-Nieto
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. C Serrano-Cinca
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. C Mar Molinero
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to B Gutiérrez-Nieto.

Appendices

Appendix A

See Table A1

Table 8 Eighty-nine MFIs and values of inputs and outputs
Full size table

Appendix B

See Table B1

Table 9 Efficiencies DEA under the seven models
Full size table

Rights and permissions

Reprints and permissions

About this article

Cite this article

Gutiérrez-Nieto, B., Serrano-Cinca, C. & Mar Molinero, C. Social efficiency in microfinance institutions. J Oper Res Soc 60, 104–119 (2009). https://doi.org/10.1057/palgrave.jors.2602527

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/palgrave.jors.2602527

Keywords

Search

Navigation