FINANCIAL AND SOCIAL EFFICIENCY OF MICROFINANCE INSTITUTIONS IN INDIA

Abstract

The microfinance services have emerged as the provision which offers a range of financial services including small loans to the poor who have little or no access to formal financial services. The definition of microfinance involves achieving both financial and social objectives. The microfinance institutions (MFIs) provide micro-financial services to the poor and they are considered the special types of institutions that operate to achieve the dual goals, financial sustainability and social outreach. Hence, an assessment of MFI based on either the financial performance or only social performance does not serve the purpose. Therefore, the performance of MFIs needs to be assessed from a dual perspective − both from financial and social aspects. Besides, the Indian MFI industry has perceived rapid growth, crisis, and regulatory reforms which completely revolved the industry during the last couple of decades. In the year 2011, after the unfortunate event of Andhra Pradesh crisis, based on Y.H. Malegam committee report, the Reserve Bank of India (RBI) introduced the new regulatory norms in the MFI industry to boost the confidence of stakeholders of MFI industry. The creation of the NBFC-MFIs category in the MFI industry is one of the results of the new regulatory framework. The Indian MFI industry has gone through significant regulatory changes and major structural changes. Therefore, it is crucial to know that to what extent the new regulatory reforms have impacted the efficiency and productivity of Indian microfinance institutions. What was the level of financial and social efficiency during the regulatory reforms? What are the variations in the efficiency of NBFC and non-NBFC MFIs? The thesis also examines the total factor productivity (TFP) and its decompositions of Indian MFIs. What are the different sources of productivity changes in Indian MFIs? The microfinance programme is considered to be originated in South Asia. Therefore, the study has compared the financial and social performance level of Indian MFIs with the MFIs operating in the peer nations of South Asia, e.g., Bangladesh, Nepal, Pakistan. The key objective of the thesis is to assess the efficiency and productivity of microfinance institutions (MFIs) in India. However, more specifically, the objective(s) of the thesis are as follows, (i) to perform the systematic review of the studies on the efficiency assessment of microfinance institutions using frontier approaches, ii) to examine the trends in financial and social efficiencies of the microfinance institutions in India, and across distinct organizational forms in response to the regulatory reforms, iii) to investigate the trade-off in achieving dual efficiency goals; financial and social – by microfinance institutions in India, iv) to evaluate the productivity and its components of the microfinance institutions in India, and across distinct organizational forms in response to the regulatory reforms, v) to explore the contextual factors influencing the bootstrapped efficiency and productivity estimates of MFIs in India, and vi) to see the efficiency variations in the microfinance institutions in India vis-à-vis peers in South Asia using bootstrapped DEA-based Meta-frontier analysis. The the