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Financial Sustainability of Non-Governmental Microfinance Institutions (MFIs): A Cost-Efficiency Analysis of BRAC, ASA, and PROSHIKA from Bangladesh

Dilruba Khanam (), Syeda Sonia Parvin (), Muhammad Mohiuddin (), Asadul Hoque () and Zhan Su
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Dilruba Khanam: Department of Marketing Studies and International Marketing; Ex-Faculty of Business Administration, University of Chittagong, BANGLADESH
Syeda Sonia Parvin: School of Business and Economics, Thompson Rivers University Kamloops, British Columbia, V2C 0C8, CANADA
Muhammad Mohiuddin: School of Business and Economics, Thompson Rivers University Kamloops, British Columbia, V2C 0C8, CANADA
Asadul Hoque: School of Environment, Enterprise & Development (SEED), Faculty of Environment, University of Waterloo, 200 University Avenue West, Waterloo, Ontario, N2L 3G1, CANADA
Zhan Su: International Business School, Laval University, Quebec, G1V 0A6, CANADA

Review of Economics & Finance, 2018, vol. 12, 43-56

Abstract: Microcredit for poverty alleviation program got huge success in many parts of the world in reducing income-poverty and human-poverty. The progress on human poverty reduction was faster than the income-poverty. There are insignificant researches of financial efficiency of microcredit delivery programs undertaken by the Microfinance Institutions (MFI). The objective of this paper is to measure the cost-efficiency of three leading micro-finance providers: BRAC, ASA, and PROSHIKA from Bangladesh. The paper intends to achieve five years X-efficiency scores for the above-mentioned micro-finance providers. In the light of this main objective, the specific two objectives of this study are: (i) To find efficiency score of these three NGOs for the study years to identify the best and poor practices; and, (ii) To analyse the potential improvement. We investigate financial efficiency of the group-based lending institutions by using data envelopment analysis (DEA), which is a frontier approach. The study finds that the credit program of BRAC-1998, BRAC-2000, and PROSHIKA-1998 were 100% efficient in output maximization and that PROSHIKA-1998, BRAC-1998, and PROSHIKA-2000 were 100% efficient in input minimization. However, the micro credit program of BRAC, ASA, and PROSHIKA were not efficient for the year 1999. The other study period for the three micro-finance providers were less than 100% efficient in both input minimisation and output maximization problem. Our findings imply that the improvement of micro-finance programs in poverty alleviation requires changes both at program & providers levels as well as at the policy level of donors and/or other organizations who provide funds to these microfinance providers.

Keywords: Data envelopment analysis (DEA); Micro-finance institutions (MFI); Cost-efficiency analysis; Bangladesh (search for similar items in EconPapers)
JEL-codes: P42 O12 O16 G21 (search for similar items in EconPapers)
Date: 2018
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