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Efficiency analysis of major microfinance institutions in Bangladesh: a Malmquist index approach

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Abstract

Microfinance institutions (MFIs) have dual objectives- reaching under privileged households for poverty easing and achieving financial sustainability. This paper investigates the efficiency of major 15 MFIs in Bangladesh using Malmquist index (MI) over the period 2008–2012. A balanced panel dataset of 75 observations is used. The results from MI are decomposed into three efficiency scores—technical efficiency (TCH), scale efficiency (SE) and pure efficiency (PE). The empirical findings indicate that MFIs are experienced an excellent annual efficiency progress (93.5 %) which was mainly because of PE. PE measures the capacity of optimizing minimum input to produce maximum output by reducing production wastage. This outstanding growth was an outcome of country’s ever best economic settings before 2008. However, from 2009 onward, a substantial efficiency regresses is observed. The results also signify that the major MFIs have less capacity to work at their optimal scales. The contribution of SE is very low (only 2.2 %) compared to total efficiency progress. Findings from TCH indicate that the overall frontier is moving relatively slow in an outward direction (only 3.7 % of TCH progress).

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Notes

  1. The MFI industry in Bangladesh operates under the direct supervision of The Microcredit Regulatory Authority (MRA). A detailed analysis of improvement and development of Bangladesh microfinance sector is available at http://www.mra.gov.bd/index.php?option=com_content&view=frontpage&Itemid=74.

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Acknowledgments

This research was funded by Grants awarded by Bright Spark Scheme of the University of Malaya, Kuala Lumpur, Malaysia. The funder had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

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Authors and Affiliations

  1. Department of Applied Statistics, Faculty of Economics and Administration, University of Malaya, 50603, Kuala Lumpur, Malaysia

    Md. Abul Kalam Azad & Susila Munisamy

  2. Department of Administrative Studies & Politics, Faculty of Economics and Administration, University of Malaya, 50603, Kuala Lumpur, Malaysia

    Abdul Kadar Muhammad Masum

  3. Department of Business Administration, International Islamic University Chittagong, Chittagong, Bangladesh

    Dilruba Fatima Sharmin

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  1. Md. Abul Kalam Azad
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  2. Abdul Kadar Muhammad Masum
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Correspondence to Md. Abul Kalam Azad.

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Azad, M.A.K., Masum, A.K.M., Munisamy, S. et al. Efficiency analysis of major microfinance institutions in Bangladesh: a Malmquist index approach. Qual Quant 50, 1525–1537 (2016). https://doi.org/10.1007/s11135-015-0219-8

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