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A Study of Efficiency of Microfinance Institutions in India: A DEA Approach


Affiliations
1 Department of Commerce, Assam University, Silchar, India
     

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Microfinance institutions (MFIs) are considered to be the most important mechanism for achieving financial inclusion in developing countries like India where a large population is still deprived of formal financial services. Owing to the growing importance of MFIs, it is equally important to study the efficiency of these institutions which this paper attempts to do by selecting 21 Indian MFIs with the legal status of a non-bank financial institution (NBFI) and Non-governmental organisation (NGO), and by using Data Envelopment Analysis. The study used BCC Model and Undesirable Measure Model for gauging the efficiency of the MFIs. The Spearman’s Rank Correlation was estimated to check the correlation between the scores computed by using both the models. The study further attempts to compare the efficiency between NBFI- MFIs and NGO-MFIs. Results show that the average technical efficiency (TE) score under the BCC model was 0.771 and under Undesirable Measure Model was 0.997. The findings suggest that the relatively inefficient MFIs need to minimise the Portfolio at Risk (PaR)>30 to the extent of 50% in order to become efficient. Further it indicates that there exists positive correlation between the ranks of the MFIs under BCC and Undesirable Measure Model. The results also show that efficiency of the NGO-MFIs is at par with that of the NBFI- MFIs.

Keywords

MFIs, Data Envelopment Analysis, BCC Model, Undesirable Measure Model.
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  • A Study of Efficiency of Microfinance Institutions in India: A DEA Approach

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Authors

Santa Kar
Department of Commerce, Assam University, Silchar, India
Joyeeta Deb
Department of Commerce, Assam University, Silchar, India

Abstract


Microfinance institutions (MFIs) are considered to be the most important mechanism for achieving financial inclusion in developing countries like India where a large population is still deprived of formal financial services. Owing to the growing importance of MFIs, it is equally important to study the efficiency of these institutions which this paper attempts to do by selecting 21 Indian MFIs with the legal status of a non-bank financial institution (NBFI) and Non-governmental organisation (NGO), and by using Data Envelopment Analysis. The study used BCC Model and Undesirable Measure Model for gauging the efficiency of the MFIs. The Spearman’s Rank Correlation was estimated to check the correlation between the scores computed by using both the models. The study further attempts to compare the efficiency between NBFI- MFIs and NGO-MFIs. Results show that the average technical efficiency (TE) score under the BCC model was 0.771 and under Undesirable Measure Model was 0.997. The findings suggest that the relatively inefficient MFIs need to minimise the Portfolio at Risk (PaR)>30 to the extent of 50% in order to become efficient. Further it indicates that there exists positive correlation between the ranks of the MFIs under BCC and Undesirable Measure Model. The results also show that efficiency of the NGO-MFIs is at par with that of the NBFI- MFIs.

Keywords


MFIs, Data Envelopment Analysis, BCC Model, Undesirable Measure Model.

References