Technical Efficiency of Microfinance Institutions in India:Data Envelopment Analysis

Abstract

In the present study the average data of six consecutive years have been used to measure the technical efficiency of Microfinance Institutions (MFIs). The study revealed that there were three efficient MFIs under Constant Returns to Scale (CRS) and five efficient MFIs under Variable Returns to Scale (VRS) assumption. Average input-oriented Technical Efficiency (TE), Pure Technical Efficiency (PTE) and Scale Efficiency (SE) worked out to be 37.4, 52.5 and 70.2 per cent, respectively. The corresponding figures under output- oriented measures were estimated to be 37.4, 45.3 and 85 per cent, respectively. It was found that 84 per cent of the MFIs studied in India were enjoying economies of scale under input-oriented measure, whereas only 36 per cent MFIs studied experienced economies of scale under output-oriented measure. Further it was found that majority of the selected MFIs, i.e., more than 3/4 MFIs have PTE less than or equal to 70 per cent under both the input and output oriented measures. Only 28 per cent of the selected units have PTE above 80 per cent efficiency level under input-oriented measures and 20 per cent under output measures. Tobit model, to explain the variability of individual efficiency measures, shows that 65 per cent of the variation in the technical efficiency is explained by the independent variables included in the model.