Proceedings of 3rd Global Business and Finance Research Conference
9 - 10 October 2014, Howard Civil Service International House, Taipei, Taiwan ISBN: 978-1-922069-61-0
Pursuing Efficiency: A Data Envelopment Analysis of MFIs in
Latin America
Tracy Collins*
This paper analyzes the overall operational efficiency (OE) and profitability efficiency (PE)
of Microfinance Institutions (MFIs) in Latin America. The OE and PE of each MFI in the
study is broken down into three components: technical efficiency, pure technical efficiency,
and scale efficiency. Four data envelopment models are used to analyze each component.
Each MFI was labeled as either a bank, cooperative and credit union, non-bank financial
institution, or non-governmental organization, and then the analysis was performed on
each separate group. The results suggest that, on average, banks are the most efficient
MFIs; while NGOs are, on average, the least efficient MFIs. On average, all four groups are
more pure technically efficient than scale efficient and technically efficient. Banks, NGOs,
NBFIs, COOPS and CUs all seem to have problems with scale efficiency. Many MFIs
seem to be operating on the increasing returns to scale frontier and are in a more favorable
position for expansion. The results also suggest that collaboration between and networking
among MFIs might be beneficial and could have a positive effect on efficiency if less
efficient MFIs are appropriately paired with efficient MFIs. The second stage regression
analysis using the to bit model highlights the fact that the determinants of operational and
profitability efficiency differ between each MFI group. The main determinants of OE are the
staff turnover rate and the salary of personnel as a percentage of GNI, while the write-off
ratio, the real yield on the gross loan portfolio, the percent of female borrowers, the
average loan balance per borrowers, and the salary of personnel as a percentage of GNI
are the main determinants of PE.
Keywords: Efficiency; Nonparametric Estimation; Microfinance Institutions; Data
Envelopment Analysis; Decision Making Units; Latin America
JEL Classifications: G20, G21, C61, O29
___________________
Division of Social Sciences, New College of Florida, E-mail: tcollins@ncf.edu. Address: 5800 Bay Shore
Road, Sarasota, FL 34243. Office: 941 487-4372, Fax: 941 487-4475