On the Estimation Stability of Efficiency and Economies of Scale in Microfinance Institutions

Thomas Bolli () and Anh Vo Thi
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Thomas Bolli: KOF Swiss Economic Institute, ETH Zurich, Switzerland

No 12-296, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: This paper uses a panel data set of microfinance institutions (MFI) across the world to compare several identification strategies of cost efficiency and economies of scale. Concretely, we contrast the non-parametric Data Envelopment Analysis (DEA) with the Stochastic Frontier Analysis (SFA) and a distribution-free identification based on timeinvariant heterogeneity estimates. Furthermore, we analyze differences of production functions across regions and investigate the relevance of accounting for unobserved heterogeneity across countries. The results suggest that efficiency rankings of MFIs are robust across identification strategies, but highlight the relevance of accounting for unobserved heterogeneity. We further find substantial economies of scale for a pure financial production process. However, accounting for the multi-dimensional production process of MFIs by including a measure of outreach lowers the estimated extent of economies of scale for the parametric estimations, suggesting that producing outreach creates high transaction costs and requires exploitation of local knowledge.

Keywords: Microfinance; Cost Efficiency; Economies of Scale; SFA; DEA; DFA; Unobserved Heterogeneity; Outreach (search for similar items in EconPapers)
Pages: 21 pages
Date: 2012-01
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:12-296

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