Factors Affecting Social and Financial Efficiency of MFIs: DEA and Tobit Approach

Abstract

This study aims to examine the factors that affect the social and financial efficiency of Indian Microfinance Institutions (MFIs). Relative efficiency of 38 non-banking financial companies (NBFC)-MFIs has been measured using the non-parametric data envelopment analysis (DEA) approach. The determinants of social and financial efficiency of MFIs have been identified using censored Tobit regression. The study findings indicate that NBFC-MFIs are financially more efficient than social. Regression analysis results reveal that age and size are important variables of financial efficiency while leverage and size are social efficiencies. This may be the first extensive study measuring the determinants of efficiency on financial and social dimensions separately for Indian NBFC-MFIs. This study contributes to the scarce literature by providing the role of efficiency in the sustainability of MFIs in the long run.