The social and financial efficiency of microfinance institutions: the case of Bosnia and Herzegovina

Abstract

This paper investigates the financial and social efficiency of microfinance institutions (“MFIs”) in Bosnia and Herzegovina, as well as the effects of the latest crisis on these “two-dimensional” efficiencies. Specifically, we analyze the efficiency of MFIs in Bosnia and Herzegovina (BiH) as a good case of a European, post-war country in transition with a developed micro-financial sector. The efficiency analysis relies on secondary data collected and investigated through Data Envelopment Analysis (DEA). The study covers data for the period commencing in 2008 and ending in 2015. In our empirical investigation, we find a suboptimal level of both financial and social efficiency among MFIs in BiH. However, financial efficiency is significantly higher than social efficiency, while small-sized MFIs over perform larger ones in both the financial and social dimensions. As a result of the crisis, MFIs recorded a declining trend in efficiency up to 2010, after which they began to show signs of slow recovery. However, our results suggest that MFIs prioritized financial over social goals in recovery period following the crisis.

Productivity Change of Microfinance Institutions in Bosnia and Herzegovina

“…The main aim of this study is to explore the productivity change of MFIs in the post-crisis period, or from 2008 and 2009 (the crisis years) until 2015, as a last year of available data for our sample. Although MFIs showed efficiency growth in the after -crisis period in both the social and financial dimension (Efendic and Hadziahmetovic 2017), this study shed light on productivity changes in the specific period of their development. The aim of this study is also to quantify the Malmquist productivity index (MPI) and its components for MFIs that are operating in BiH over the 7-year period from 2008 to 2015.…”

“…Of those 13 MFIs, 9 are for-profit institutions and 4 non-profit organizations (FBA 2018; ABRS 2018). Overall, when compared to other financial institutions only small numbers of studies are focused on MFIs and their efficiency (Widiarto and Emrouznejad 2015), and when speaking about BiH, there is a serious research gap (Efendic and Hadziahmetovic 2017). To the best of our knowledge there is only one study that covers "two-dimensional" efficiency of MFIs in BiH.…”

“…From being driven by their social mission of reaching poor people and alleviating poverty, MFIs shifted their focus on only achieving financial goals (Bassem 2014). However, even though the primary aim of MFIs is to enable access to funds for low-income populations, this goal cannot be achieved without sustainable profitability (Efendic and Hadziahmetovic 2017). The environment in which MFIs operate are significantly influenced by rapid innovations in technology together with the implementation of different policy instruments .…”

“…Further on similar research was conducted by Gutiérrez-Nieto et al (2009) where social and financial efficiency of Asian MFIs was analyzed, Sedzro and Keita (2009) whose study focuses on the efficiency of MFIs located in seven countries from the West African Economic and Monetary Union, Haq et al (2010) who examined cost efficiencies of MFIs across Africa, Asia and Latin America. Kipesha (2012) conducted a study which focused on South African MFIs and their efficiency while Tahir (2013) assessed the efficiency of MFIs in ASEAN countries; Widiarto and Emrouznejad (2015) went a step ahead and compared two-dimensional efficiency between Islamic and conventional MFIs; analyzed MFIs efficiency in Sri Lanka and Efendic and Hadziahmetovic (2017) who investigated the financial and social efficiency of MFIs in BiH. However, just a few studies have been performed to study the productivity change of MFIs.…”

“…The aim of this study is also to quantify the Malmquist productivity index (MPI) and its components for MFIs that are operating in BiH over the 7-year period from 2008 to 2015. The microfinance sector in BiH started to develop as a support to the country recovery from the consequences of war (Bateman et al 2012) and hence BiH serves as a good case for this kind of research (Efendic and Hadziahmetovic 2017). In addition to this, the study will help policymakers, as well as industry practitioners and donors to understand the performance and productivity change of MFIs and direct them to construct proper policies, managerial decisions and strategies to enhance the development of MFIs in this region.…”