Abstract:
With the innovation and rapid expansion of the new concept “Microfinance”, researchers,
policymakers and donors at the recent time have found it very essential to observe how efficiently
Microfinance Institutions are operating in economy. If the MFIs are not able to achieve efficiency,
they would not be able to sustain in the long run being lagging behind in achieving their social
objective. This PhD report focuses on the issue in respect of MFIs in Bangladesh. This is the first
paper that applies both parametric and non-parametric models to measure cost efficiency on a large
sample size including 146 MFIs in Bangladesh over 2016-2020. Along with efficiency estimates,
the paper analyzes the effect of outreach variables on the level of efficiency. This enlightens the
current concern regarding the trade-off between sustainability and efficiency of microfinance
institutions. My research finds that the MFIs in Bangladesh are on an average 78% efficient
indicating that these institutions have scope to reduce their cost by around 22% to produce the
same output level. Also, it is found that outreach is being compromised to achieve efficiency as
MFIs are more interested to provide larger loan amounts to the comparatively well-off poor in the
society. However, the MFIs in Bangladesh are able to achieve efficiency by concentrating credit
disbursement to the women borrowers as women borrowers are more active in utilizing the loan
amount and thus creating sufficient earning sources to repay the loan. Moreover, the economies of
scale is found in the sector indicating that MFIs here have opportunity to serve the poor at lower
cost and thus attain better outreach by expanding their size. Thus, the my thesis will facilitate the
MFIs to direct their resources properly and achieve efficiency, policymakers to decide how this
sector can be utilized to achieve social welfare as well as donors to decide to which MFIs they
want to steer their fund.
