Abstract
The objective of Microfinance institutions (MFIs) is
often two-fold; the so-called double bottom line of seeking financial return
sustainability, while also maximizing the social impact of their services on
the lives of the poor individuals they serve. The pursuit of the social impact
bottom line puts microfinance institutions in a peculiar position with regards
to the response of their cost structure to the global financial crisis. This
paper begins by investigating the impact of the global financial crisis on the
cost structure, and cost inefficiencies of MFIs given their double bottom line
pursuits. Overall, it appears that achieving growth in both dimensions of
social impact and financial sustainability, grew more costly for the MFIs
directly because of the global financial crisis. Moreover, given the
risk-adjusted nature of the cost inefficiency measure used in the paper, the
results show that maintaining a given level of risk in the loan portfolios
became significantly more challenging for MFIs after the global financial
crisis. In addition, the analysis performed here finds that more than
two-thirds of the institutions in the industry are operating under economies of
scale, although the proportion decreased after the global financial crisis.
This suggests that some progress is evident towards broader achievement of the
cost benefits of scale, but that the industry on average still has room for
consolidations, mergers, and acquisitions. The analysis uses a time-invariant
panel Stochastic Frontier Analysis with standard errors clustered at the
country level. The data, from the Mix Market database, comprises 1400
Microfinance institutions across 108 countries.
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IJBMS by IPRPD is licensed under a Creative Commons Attribution 4.0 International License.