Economics at your fingertips  

Financial Inclusion, Deepening and Efficiency in Microfinance Programs: Evidence from Bangladesh

Md Aslam Mia, Lucia Dalla Pellegrina, Patrick Damme and Mahinda Wijesiri ()
Additional contact information
Md Aslam Mia: Universiti Sains Malaysia (USM)
Lucia Dalla Pellegrina: University of Milano-Bicocca
Patrick Damme: Ghent University
Mahinda Wijesiri: Ton Duc Thang University

The European Journal of Development Research, 2019, vol. 31, issue 4, No 5, 809-835

Abstract: Abstract The economic literature provides evidence that growth is associated with positive performance of the financial sector. This aspect is particularly important for developing countries. This study aims to investigate whether, in an environment of growing competition and regulation, the maintenance of their social mission may have led microfinance institutions (MFIs) to compromise their performance, in terms of efficient production of credit services. To this purpose, we use a two-stage approach to analyze the relationship between outreach and efficiency of MFIs in Bangladesh. In the first stage, a dynamic data envelopment analysis is exploited to measure the efficiency of MFIs from 2009 to 2014. The results show that most of the MFIs are operationally inefficient over the period, suggesting a considerable potential for future improvement. In the second stage, the study examines the potential trade-off between MFIs’ commitment to financial inclusion and depth of outreach on the one hand and efficiency on the other hand, using a double bootstrapping methodology that helps in limiting the problems arising from the endogenous nature of the measures of outreach with respect to efficiency. The results show that financial inclusion is positively associated with MFIs’ efficiency, whereas the relationship between deepening and efficiency turns up negative, providing partial evidence in support of ‘mission drift’ in the Bangladesh microfinance industry. This may be indicative of the fact that MFIs with stronger commercial objectives have expanded their business and their margins of efficiency to compete with other intermediaries. In contrast, the MFIs with a more intense social strategy may have suffered a decrease in their operating efficiency in order to maintain their social mission. Policy implications point towards a greater degree of awareness on the part of the regulatory authorities of the consequences of imposing constraints on the operating mechanisms of the microfinance industry, such as interest rate caps. We also suggest that rules disciplining competition should not be uniform, but rather tailored to specific outreach indicators.

Keywords: Microfinance; Financial inclusion; Efficiency; Bangladesh (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

DOI: 10.1057/s41287-018-0188-6

Access Statistics for this article

The European Journal of Development Research is currently edited by Spencer Henson and Natalia Lorenzoni

More articles in The European Journal of Development Research from Palgrave Macmillan, European Association of Development Research and Training Institutes (EADI) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2021-01-14
Handle: RePEc:pal:eurjdr:v:31:y:2019:i:4:d:10.1057_s41287-018-0188-6