Skip to main content
SpringerLink
Log in

Efficiency Comparison Between Non-profit and Commercial Microfinance: Empirical Evidence from Akhuwat Microfinance and Grameen Bank Using Data Envelopment Analysis

  • Conference paper
  • First Online:
Technology: Toward Business Sustainability (ICBT 2023)

Part of the book series: Lecture Notes in Networks and Systems ((LNNS,volume 927))

Included in the following conference series:

  • 70 Accesses

Abstract

The operational effectiveness of a microfinance institution (MFI) significantly impacts its sustainability. The aim of this research is to undertake an assessment of comparisons of the operational effectiveness of a nonprofit and commercial MFI. The aim is to extract valuable insights from the best practices employed by these institutions. To accomplish this goal, two prominent MFIs have been chosen for analysis. The first is Grameen Bank (Bangladesh), which serves as a representative of commercial micro-finance. The second is Akhuwat Microfinance in Pakistan, which represents nonprofit microfinance. This study employs a quantitative research methodology, specifically the Data Envelopment Analysis (DEA) technique. The DEA is a widely utilized non-parametric method employed in this research to assess the efficiency of both MFIs for the time frame between 2013 and 2019. Malmquist index assesses efficiency within the context of the DEA technique. The Malmquist efficiency measures can be broken down into two distinct indexes: efficiency change and technical change. The concept of efficiency change can be further subdivided into two sections: pure efficiency and scale efficiency. The two establishments’ annual reports provided the input-output data needed for the efficiency assessment. The results suggest that Akhuwat Microfinance demonstrated inefficiency for the duration of the study, with a waste of 38 percent of its inputs. Except for the year 2018, during which Akhuwat Microfinance achieved 100% efficiency. In contrast, the inefficiency rate of Grameen Bank was significantly lower, standing at a mere 3 percent. This essay is on the experiences of Grameen Bank and Akhuwat Microfinance, with a particular focus on the problems encountered in achieving operational efficiency within communities that lack the requisite skills and training to adapt to these emerging MFIs properly.

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 149.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 199.99
Price excludes VAT (USA)
  • Compact, lightweight 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

Similar content being viewed by others

References

  • Ahmad, U.: Efficiency Analysis of Micro-finance Institutions in Pakistan (2011). https://mpra.ub.uni-muenchen.de/id/eprint/34215

  • Khan, A., Hassan, M.K., Paltrinieri, A., M Alshater, M.: Islamic banking: past, present and future. J. Coll. Sharia Islamic Stud. 41(1) (2022). https://doi.org/10.29117/jcsis.2023.0351

  • Avkiran, N.K.: The evidence on efficiency gains: the role of mergers and the benefits to the public. J. Bank. Financ. 23(7), 991–1013 (1999)

    Article  Google Scholar 

  • Balkenhol, B.: Efficiency and Sustainability in Microfinance. In: Balkenhol, B. (ed.) Microfinance and Public Policy. ILOCS, pp. 3–23. Palgrave Macmillan UK, London (2007). https://doi.org/10.1057/9780230300026_1

    Chapter  Google Scholar 

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

    Article  Google Scholar 

  • Beall, J.S.: Akhuwat: Potential for a Sustainable Islamic Interest Free Microfinance Model [Claremont Colleges] (2016). https://scholarship.claremont.edu/scripps_theses/755/

  • Berg, S.A., Førsund, F.R., Jansen, E.S.: Technical efficiency of Norwegian banks: the non-parametric approach to efficiency measurement. J. Prod. Anal. 2(2), 127–142 (1991)

    Article  Google Scholar 

  • D’Souza, A.F.N., Sai Sundar, H.: Overcoming the challenges of establishing Islamic banks in India: a case study of al-Arafah Islamic investment bank. In: Aloysius (2023)

    Google Scholar 

  • Edward, J., Jaheer Mukthar, K.P., Asis, E.R., Sivasubramanian, K.(eds.): Current Trends in Economics, Business and Sustainability. ICEBS 2023. Contributions to Environmental Sciences & Innovative Business Technology. Springer, Singapore (2023). https://doi.org/10.1007/978-981-99-3366-2_23

  • Djaghballou, C.-E., Djaghballou, M., Larbani, M., Mohamad, A.: Efficiency and productivity performance of zakat funds in Algeria. Int. J. Islam. Middle East. Financ. Manag. 39, 88 (2018)

    Google Scholar 

  • Elmaghrabi, M.G., Mohammed, M.O., Jan, M.T.: Towards developing standards for the zakat administration in the Republic of Sudan. Int. J. Manag. Appl. Res. 7(2), 136–146 (2020)

    Article  Google Scholar 

  • Faere, R., Grosskopf, S., Lovell, C.A.K., Pasurka, C.: Multilateral productivity comparisons when some outputs are undesirable: a nonparametric approach. Rev. Econ. Stat. 71(1), 90–98 (1989)

    Article  Google Scholar 

  • Farrell, M.J.: The measurement of productive efficiency. J. R. Stat. Soc. Ser. A 120(3), 253 (1957)

    Google Scholar 

  • GutiĂ©rrez-Nieto, B., Serrano-Cinca, C., Mar Molinero, C.: Microfinance institutions and efficiency. Omega 35(2), 131–142 (2007)

    Article  Google Scholar 

  • Haq, M., Skully, M., Pathan, S.: Efficiency of microfinance institutions: a data envelopment analysis. Asia-Pac. Finan. Mark. 17(1), 63–97 (2010)

    Article  Google Scholar 

  • Kabir Hassan, M., Renteria-Guerrero, L.: The experience of the Grameen Bank of Bangladesh in community development. Int. J. Soc. Econ. 24(12), 1488–1523 (1997). https://doi.org/10.1108/03068299710193949

  • Hassan, M.K., Sanchez, B.: Efficiency Analysis of Microfinance Institutions in Developing Countries. In Networks Financial Institute Working (2009).https://doi.org/10.2139/ssrn.1492238

  • Islam, J., Mohajan, H., Datta, R.: Aspects of microfinance system of Grameen Bank of Bangladesh. Int. J. Econ. Res. 3(4), 76–96 (2012)

    Google Scholar 

  • Islam, K.M., Bäckman, S., Sumelius, J., et al.: Technical, economic and allocative efficiency of microfinance borrowers and non-borrowers: evidence from peasant farming in Bangladesh. Methodol. Eur. J. Res. Methods Behav. Soc. Sci. (2011). https://helda.helsinki.fi/handle/10138/158534

  • Jaiyeoba, H.B., Adewale, A.A., Ibrahim, K.: Measuring efficiencies of Bangladeshi and Indonesian microfinance institutions. Int. J. Bank Mark. 36(2), 305–321 (2018)

    Article  Google Scholar 

  • Kipesha, E.F.: Efficiency of microfinance institutions in east africa: a data envelopment analysis (2012). http://bestdialogue2.antenna.nl/handle/20.500.12018/565

  • Kipesha, E.F.: Production and intermediation efficiency of microfinance institutions in Tanzania. Res. J. Financ. Account. 4(1), 149–159 (2013)

    Google Scholar 

  • Masood, T., Ahmad, M.I.: Technical Efficiency of Microfinance Institutions in India - A Stochastic Frontier Approach. In of Microfinance Institutions in India-A (2010). https://doi.org/10.2139/ssrn.1689645

  • Paradi, J.C., Yang, Z., Zhu, H.: Assessing Bank and Bank Branch Performance. In: Cooper, W.W., Seiford, L.M., Zhu, J. (eds.) Handbook on Data Envelopment Analysis, pp. 315–361. Springer, US (2011)

    Chapter  Google Scholar 

  • Shah, F.T., Imam, A., Qureshi, R.W., Hanif, S.: Comparison of microfinance institutions: Akhuwat foundation Vs Grameen Bank. Sci. Int. 26, 1851–1854 (2014)

    Google Scholar 

  • Shahzad, U.B.: Performance measurement of South Asian microfinance institutions: a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Banking at School of Economics and Finance, Massey University, Palmerston North, New Zealand [Massey University] (2015). https://mro.massey.ac.nz/handle/10179/7399

  • Shukran, K., Rahman, F.: A Grameen Bank concept: micro-credit and poverty alleviation program in Bangladesh. In: International Conference on Emerging Trends in Computer and Image Processing, pp. 47–51 (2011)

    Google Scholar 

  • Siddiqui, H.A.: An application of Data Envelopment Analysis to study the Technical Efficiency of UAE banks in the pre and post crisis period (2012). https://bspace.buid.ac.ae/handle/1234/112

  • Sufian, F.: Assessing the revenue efficiency of domestic and foreign Islamic banks: empirical evidence from Malaysia (2013). core.ac.uk. https://core.ac.uk/download/pdf/19790556.pdf

  • Tahir, I.M., Tahrim, S.N.C.: Efficiency analysis of microfinance institutions in ASEAN: a DEA approach. Bus. Manag. Dyn. 3(4), 13 (2013)

    Google Scholar 

  • Widiarto, I., Emrouznejad, A.: Social and financial efficiency of islamic microfinance institutions: a data envelopment analysis application. Socioecon. Plann. Sci. 50, 1–17 (2015)

    Article  Google Scholar 

  • Zaied, M., Maktouf, S.: Social and financial performance of Islamic and conventional microfinance institutions: comparative Study in Indonesia (2019). https://mpra.ub.uni-muenchen.de/id/eprint/98340

Download references

Author information

Authors and Affiliations

  1. IIiBF, Kuala Lumpur, Malaysia

    Youssef Andrif

Authors
  1. Youssef Andrif
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Youssef Andrif .

Editor information

Editors and Affiliations

  1. Middle East Technical University, Kalkanlı, Türkiye

    Bahaaeddin Alareeni

  2. College of Business of Finance, Ahlia University, Manama, Bahrain

    Allam Hamdan

Rights and permissions

Reprints and permissions

Copyright information

© 2024 The Author(s), under exclusive license to Springer Nature Switzerland AG

About this paper

Check for updates. Verify currency and authenticity via CrossMark

Cite this paper

Andrif, Y. (2024). Efficiency Comparison Between Non-profit and Commercial Microfinance: Empirical Evidence from Akhuwat Microfinance and Grameen Bank Using Data Envelopment Analysis. In: Alareeni, B., Hamdan, A. (eds) Technology: Toward Business Sustainability. ICBT 2023. Lecture Notes in Networks and Systems, vol 927. Springer, Cham. https://doi.org/10.1007/978-3-031-54009-7_12

Download citation

  • DOI: https://doi.org/10.1007/978-3-031-54009-7_12

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-031-54008-0

  • Online ISBN: 978-3-031-54009-7

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics

Search

Navigation