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Impact of Regulation on the Cost Efficiency of Microfinance Institutions in Bangladesh

Baqui Khalily, Abdul Khaleque and Shakeel Badruddoza

Working Papers from Institute of Microfinance (InM)

Abstract: Bangladesh lagged in microfinance regulation until 2006 when it established Microcredit Regulatory Authority (MRA). So far, MRA has granted license to around 650 Microfinance Institutions (MFIs); and has been supervising them with prudential and non-prudential regulations. We assessed the impact of regulation on cost efficiency using from pre-regulation and post-regulation data of 182 MFIs. Panel data analyses robustly show that regulation improves cost efficiency; directly through changing behavior of the MFIs, and indirectly through increasing staff productivity and portfolio size. We found partners of PKSF—the wholesale lending agency in Bangladesh—and unsubsidized MFIs are more efficient than others.

Date: 2014-03
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