Ownership and performance of microfinance institutions in Latin America: A pseudo-panel malmquist index approach

Abstract

To explore alternative organisational approaches used to carry out the microfinance activity, this paper compares gaps in performance of microfinance institutions (MFIs) depending on their ownership status (Privately-owned vs. NGO) and decomposes them into efficiency and technological gaps. By using a pseudo-panel Malmquist index approach to MFIs in the Latin America and Caribbean region, the selected approach overcomes the problem of different numbers of observations per year and avoids the need to pool all MFIs together to analyze group differences. Performance of MFIs is investigated from a global standpoint over the 2005-2013 period. Turning points in the performance of MFIs are closely related to recent financial crises. Privately-owned MFIs outperformed NGOs, except when the 2008- and 2011-financial crises hurt the sector. During these hard times, privately-owned companies appear less performing that NGOs, with productive frontiers most often diverging.

Keywords:

• Data envelopment analysis
• microfinance
• group performance
• productivity
• financial crisis

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 According to the 2015 Microcredit Summit report, the total number of customers served by MFIs worldwide grew continuously between 1997 and 2013. As of December 31, 2013, 3,098 MFIs reported reaching 211,119,547 borrowers, 114 million of whom were living in extreme poverty, and 82.6% of the poorest clients are women.

2 http://www.themix.org/mixmarket.

3 Including rating agencies specialized in MFIs’ rating, such as Microfinanza or Planet Rating Crisis.

4 For detecting outliers, two methods have been used: 3-standard deviations around the mean and the absolute deviation around the median (Leys et al, 2013). Both approaches provided similar results.

5 Banks and Non-Bank Financial Institutions (NBFIs)

6 Summary statistics of each variable for each group of MFIs, as well as the reference group, are provided in the Appendix.