Social efficiency in microfinance institutions

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.

Keywords:

• data envelopment analysis
• microfinance institutions (MFIs)
• social efficiency
• banking
• microcredit
• developing countries

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’.