Skip to main content
SpringerLink
Log in

Intermediate Participant Selection Phase: Assessment of Efficiency and Sustainability

  • Chapter
  • First Online:
Sustainability of Indian Microfinance Institutions

Part of the book series: India Studies in Business and Economics ((ISBE))

  • 683 Accesses

Abstract

This chapter presents the intermediate participant selection phase, pursued in this research investigation. This phase is incorporated in the three-phased sequential explanatory mixed-methods research design, to accomplish the third objective of the research investigation. The third objective aims to identify the efficient and sustainable Microfinance Institutions (MFIs) in India. The Data Envelopment Analysis (DEA) Model, the Sustainability Diamond Model and Benchmarking Process used to fulfil this objective are presented in this chapter. Using these analytical models, the author identifies seven efficient Indian MFIs, which remained sustainable by levying a reasonable interest rate, even before the onset of the crisis and ceilings imposition, in Indian microfinance market. Among these identified MFIs some are found to be charging interest rates ranging from 13–16 per cent, which is much lower than the prevailing regulatory cap of 26 per cent. The managerial practices of these MFIs can be considered to be a reference point for the lesser efficient players in the sector, which aim to enhance their efficiency levels. The extent of inefficiencies that each of these lesser efficient MFIs can trim-off from their operating structure is also depicted in this chapter. Thus overall, this chapter presents a performance analysis on a sample of 50 Indian MFIs, using efficiency and sustainability assessment techniques. The author concludes this chapter by presenting the results of a regression and discriminant analysis undertaken on the efficiency scores of the sample MFIs. The results of this analysis depict the efficiency and sustainability statuses of Indian MFIs, to be independent of their institution specific variables. This makes the author inquisitive to know more about the sustainability management practices of these MFIs, and hence she subsequently pursues as a follow-up qualitative study.

This chapter has materials published by the author in the article: ‘Assessing the Efficient and Sustainable Performance of Indian Microfinance Institutions’. Marakkath N, Ramanan RT (2012) Cost Manage. Thomson Reuters/RIA, 26 (5): 1–14

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 39.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 54.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 54.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    DEA requires homogeneous data for all entities/firms under study.

  2. 2.

    Charging cost-covering interest rates is a means of furthering the financial goal of an MFI. But as discussed earlier, if the MFI passes on its operational inefficiencies to the clients, in the form of hiked interest rates, then it can prove counterproductive for its long-run sustainability.

References

  • Athanassopoulos AD (1997) Service quality and operating efficiency synergies for management control in the provision of financial services: evidence from Greek bank branches. Eur J Oper Res 9:300–313

    Article  Google Scholar 

  • Avkiran NK (2001) Investigating technical and scale efficiencies of Australian universities through data envelopment analysis. Socioecon Plann Sci 35(1):57–80

    Article  Google Scholar 

  • Banker RD, Charnes A, Cooper WW (1984) Some models for estimating technical and scale inefficiencies in data envelopment analysis. Manage Sci 30(9):1078–1092

    Article  Google Scholar 

  • Bassem BS (2008) Efficiency of microfinance institutions in the Mediterranean: an application of DEA. Transit Stud Rev 15(2):343–354

    Article  Google Scholar 

  • Berger AN, Humphrey DB (1997) Efficiency of financial institutions: international survey and directions for future research. Eur J Oper Res 98:175–212

    Article  Google Scholar 

  • Berger AN, Mester LJ (1997) Inside the black box: what explains differences in the efficiencies of financial institutions? J Bank Financ 21:895–947

    Article  Google Scholar 

  • Bhatt N, Tang SY (2001) Delivering microfinance in developing countries: controversies and policy perspective. Policy Stud Organ 29(2):319–334

    Article  Google Scholar 

  • Charnes A, Cooper WW, Rhodes E (1978) Measuring the efficiency of decision making units. Eur J Oper Res 2:429–444

    Article  Google Scholar 

  • Christen RP (2001) Commercialization and mission drift. The transformation of microfinance in Latin America. Consultative Group to Assist the Poor (CGAP) Occasional Paper 5, Washington, DC

    Google Scholar 

  • Cingi S, Tarim A (2000) Performance measurement in Turkish banking system: data envelopment analysis Malmquist TFP index application. Turkish banks association research proceedings series, report no. 2000, 2

    Google Scholar 

  • Coelli T (1996) A guide to DEAP version 2.1: a data envelopment analysis (computer) program. Centre for efficiency and productivity analysis working paper, Department of Econometrics, University of New England. http://www.une.edu.au/econometrics/cepa.htm. Retrieved 25 Dec 2011

  • Darrat AF, Topuz C, Yousef T (2002) Assessing cost and technical efficiency of banks in Kuwait. Paper presented at ERFs 8th annual conference, Cairo

    Google Scholar 

  • Desrochers M, Lamberte M (2003) Efficiency and expense preference behavior in Philippines cooperative rural banks. Centre Interuniversitairesur Les Risque, Les Politiques Economiques Et L’emploi (CIRPÉE.) Cahier de Recherché working paper series, pp 3–21

    Google Scholar 

  • Farrell MJ (1957) The measurement of productive efficiency. J Roy Stat Soc 120:253–281

    Article  Google Scholar 

  • Farrington T (2000) Efficiency in microfinance institutes. Microbank Bull 4:20–23

    Google Scholar 

  • Guitierrez-Nieto B, Serrano-Cinca C, Molinero CM (2007) Microfinance institutions and efficiency. OMEGA Int J Manage Sci 35(2):131–142

    Article  Google Scholar 

  • Guitierrez-Nieto B, Serrano-Cinca C, Molinero CM (2008) A DEA approach to microfinance institutions efficiency. Paper presented at centre for European research in microfinance seminars, Brussels

    Google Scholar 

  • Haq M, Skully MT, Pathan S (2009) Efficiency of microfinance institutions: a data envelopment analysis. Asia Pac Financ Mark 17:63–97

    Article  Google Scholar 

  • Hassan MK, Tufte DR (2001) The X-efficiency of a group based lending institution: the case of Grameen bank. World Dev 29:1071–1082

    Article  Google Scholar 

  • Micro Rate and Inter-American Development Bank (2003) Performance indicators for microfinance institutions. A technical guide. http://microrate.com/pdf/Technical%20Guide%203rd%20Edition%20English.pdf. Retrieved 25 Dec 2011

  • Kalim R, Salahuddhin T (2011) Micro financing of NGOS and government: collaborative impact on poverty eradication. Inform Manage Bus Rev 2(2):81–91

    Google Scholar 

  • Lafourcade A, Isern J, Mwangi P, Brown M (2005) Overview of the outreach and financial performance of microfinance institutions on Africa. http://www.mixmarket.org. Accessed 25 June 2010

  • Malegam Committee Report (2011) Report of the Reserve Bank of India sub-committee of its Central Board of Directors to study issues and concerns in the Micro Finance Institutions (MFI) sector. Reserve Bank of India. http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=23780. Retrieved 25 Feb 2010

  • Marakkath N, Ramanan RT (2012) Assessing the efficient and sustainable performance of indian microfinance institutions. Cost Manage. Thomson Reuters/RIA, 26(5):1–14

    Google Scholar 

  • Navajas S, Schreiner M, Richard M, Claudio G, RodriguezMeza J (2000) Microcredit and the poorest of the poor: theory and evidence from Bolivia. World Dev 28(2):333–346

    Article  Google Scholar 

  • Nghiem H, Coelli T, Rao DSP (2006) The efficiency of microfinance in Vietnam: evidence from NGO schemes in the north and the central regions. Int J Environ Cult Econ Soc Sustain 2(5):71–78

    Google Scholar 

  • Otero M (2000) Bringing development back to micro finance. J Micro Financ 1(1):8–19

    Google Scholar 

  • Qayyum A, Ahmad M (2006) Efficiency and sustainability of micro finance institutions in South Asia. MPRA Paper 11674, University Library of Munich. http://www.saneinetwork.net/pdf/SANEI_VI/SANEIVI%20PROJECT%207%20Efficiency%20and%20Sustainability%20of%20Micro%20Finance%20Institutions%20in%20South%20Asia.pdf. Retrieved 25 Dec 2010

  • Ramanathan R (2003) An introduction to data envelopment analysis. Sage, New Delhi

    Google Scholar 

  • Robinson SM (2001) The micro finances revolution: sustainable finance for the poor. World Bank, Washington, DC

    Google Scholar 

  • Schreiner M (2002) Aspects of outreach: a framework for discussion of the social benefits of microfinance. J Int Dev 14(5):591–603

    Article  Google Scholar 

  • Siems TF, Barr RS (1998) Benchmarking the productive efficiency of US banks. Financial Industry Studies, Federal Reserve Bank of Dallas, 11–24 Dec 1998

    Google Scholar 

  • Soteriou A, Zenios SA (1999) Operations, quality and profitability in the provision of banking services. Manage Sci 45(9):1221–1238

    Article  Google Scholar 

  • Sufian F (2006) The efficiency of non-bank financial institutions: empirical evidence from Malaysia. Intern Res J Financ Econ 6:1450–2887

    Google Scholar 

  • Vassiloglou M, Giokas D (1990) A study of the relative efficiency of bank branches: an application of data envelopment analysis. J Oper Res Soc 41:591–597

    Google Scholar 

  • Woller G, Dunford C, Warner W (1999) Where to microfinance. Int J Econ Dev 1:29–64

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Management & Labour Studies, Tata Institute of Social Sciences Centre for Social Entrepreneurship, Mumbai, Maharashtra, India

    Nadiya Marakkath

Authors
  1. Nadiya Marakkath
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

Copyright information

© 2014 Springer India

About this chapter

Cite this chapter

Marakkath, N. (2014). Intermediate Participant Selection Phase: Assessment of Efficiency and Sustainability. In: Sustainability of Indian Microfinance Institutions. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1629-2_5

Download citation

Publish with us

Policies and ethics

Search

Navigation