Efficiency Analysis of Microfinance Institutions in Developing Countries

This paper investigates technical and scales efficiencies of microfinance institutions (MFI) in three regions: Latin America countries, Middle East and North Africa (MENA) countries, and South Asia countries, and compares efficiencies across regions and across type of MFIs. We find that technical efficiency is higher for formal MFIs (banks and credit unions) than non-formal MFIs (nonprofit organizations and non-financial institutions). Furthermore, South Asian MFIs have higher technical efficiency than Latin American and MENA MFIs. The source of inefficiency is pure technical rather than scale, suggesting that MFIs are either wasting resources or are not producing enough outputs (making enough loans, raising funds, and getting more borrowers)