Evaluating Productivity of Chinese Microfinance Institutions: A Malmquist Approach

Abstract

While the prime objective of Microfinance Institutions (MFIs) is to alleviate poverty, their sustainability is largely dependent on their productivity. Using the Malmquist approach and a panel dataset of 21 MFIs, this paper analyzes changes in the productivity of China’s MFIs between 2010 and 2012. Our findings reveal that the productivity of the MFIs in China stagnated due to the lack of technological change, despite progress in technical efficiency. Technical efficiency has been bolstered by improved management practices and size effect. The findings help improve our understanding of the Chinese microfinance sector in general, and MFIs’ productivity in particular. One policy implication that can be drawn from the evidence is to encourage MFIs participation in innovation activities, so that the stimulation of technological change can improve the overall productivity of Chinese MFIs.

Keywords:

• China
• Malmquist productivity index
• Microfinance institutions
• productivity

Acknowledgement

Our appreciation goes to the Editor of this special issue, Professor Gene Chang and Professor Jinlan Ni, two anonymous reviewers and Dr. Cheong Kee Cheok for their constructive comments and suggestions on the earlier version of this draft. The first author also acknowledges guidance from his supervisors, Dr. VGR Chandran and Dr. Lee Hwok-Aun on various occasions while preparing this manuscript. Informal academic discussions with Dr. Cheng Zhang (Dana), Dr. Mahfuzur Rahman, Dr. Hasanul Banna, Halima Shilpi, Shamima Nasrin, Md. Sohel Rana, Khaled Saifullah & Jannatun Nur (Kona) are very much appreciated by the first author. The first author was attached to the University of Malaya when this study was conducted. All remaining errors are our own. The usual caveats apply.

Notes

1 TFP and MPI are interchangeably used in this study.