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Convergence of the performance of microfinance institutions: A decomposition analysis

Li, L. Y., Hermes, N. & Meesters, A., Sep-2019, In : Economic Modelling. 81, p. 308-324 17 p.

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  • Convergence of the performance of microfinance institutions

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In this paper, we focus on investigating whether and to what extent patterns of performance microfinance institutions converge over time. In particular, we analyze whether patterns of performance are related to changes in operating efficiency, capital deepening, and/or technological change for a large international sample of micro finance institutions for the period 2003-2012. We apply intertemporal Data Envelopment Analysis, a methodology that has been used extensively in the literature explaining patterns of economic growth, but has not been applied yet in microfinance research. We decompose performance changes into operating efficiency changes, changes in capital intensity and/or technological change and find that capital deepening is the most important source of improved performance, especially during the first half, while capital deepening and technological innovations are important during the second half of the period. We also find strong evidence for convergence of performance between microfinance institutions. These trends concur with important changes in microfinance, such as increased commercialization, competition with commercial banks, and involvement of private investors.

Original languageEnglish
Pages (from-to)308-324
Number of pages17
JournalEconomic Modelling
Volume81
Publication statusPublished - Sep-2019

    Keywords

  • Microfinance, Productivity, Data envelopment analysis, Financial performance, Social performance, Convergence, TOTAL FACTOR PRODUCTIVITY, TECHNICAL PROGRESS, EFFICIENCY CHANGE, INDUSTRIALIZED COUNTRIES, FINANCIAL INSTITUTIONS, APPROPRIATE TECHNOLOGY, SOCIAL EFFICIENCY, EUROPEAN BANKING, GROWTH, OUTREACH

ID: 117462606