Ownership and performance of microfinance institutions: Empirical evidences from India

Abstract

The study examines the efficiency differences across the ownership structure of Indian microfinance institutions (MFIs) operating during the year 2005/ 06 to 2017/18 in response to regulatory reforms initiated by the Reserve Bank of India (RBI) in the year 2011. We remove the outliers from the dataset first. Thereafter, we employ the bootstrap data envelopment analysis (DEA) to assess the bias-corrected efficiency scores. To identify the performance determinants, we use bootstrap truncated regression. The empirical results suggest that the performance difference between NBFCs and Non-NBFC MFIs is not statistically significant in the sample period. Further, the study finds that the size and ownership structure of MFI has a positive and statistically significant impact on the efficiency level. Although the coefficient of PAR30 (Portfolio at risk, 30 days) is statistically insignificant, however, the results conclude that the deteriorating credit quality has hindered the efficiency level. The Indian MFI industry needs to focus on the adoption of more innovative technology and partnership with FinTech (financial technology

Microfinance Institutions’ Efficiency and its Determinants: Evidence from India

“…However, impact of TA on SES is significant in the model 3 where dummy variables were excluded in the model. This result is in line with the findings of Khan et al (2021) and contradicts the findings of Mia and Bassem (2016) where they have documented negative relationship between MFI’s productivity and size.…”

“…The data used in this analysis are obtained from Mix Market—World Bank data catalogue. 6 Mix Market is the largest database where MFIs voluntarily report financial and social performance across globe and is widely used by researchers and practitioners of microfinance field (Khan et al, 2021; Navin and Sinha, 2020; Sinha and Pandey, 2019). Firm level data of 180 MFIs operating in India during 2005–2018 were considered and after filtering for missing value and eliminating outliers an unbalanced panel data of 1,054 firm year observation were finally used for analysis.…”

“…Studying the effect of female participation in Indian context is not feasible as microloans are granted to mostly women SHG groups and 98% of total clientele are woman (Sa-Dhan, Bharat Microfinance Report, 2021). Wijesiri et al (2015), Damme et al (2016) and Khan et al (2021) used similar methodology following Simar and Willson (2007) and applied two-stage bias-corrected BDEA for evaluating the true efficiency of MFIs of Sri Lanka and India and in the second stage of analysis employed bootstrap-truncated regression to find out performance determinants.…”

“…Based on the literature discussed above we found certain limitations, which this present study tries to address. Most of the studies used conventional DEA except Khan et al (2021). Khan and Shireen (2020) and Wijesiri et al (2015).…”

“…Wijesiri et al (2015), Damme et al (2016) and Khan et al (2021) used similar methodology following Simar and Willson (2007) and applied two-stage bias-corrected BDEA for evaluating the true efficiency of MFIs of Sri Lanka and India and in the second stage of analysis employed bootstrap-truncated regression to find out performance determinants.…”