Microfinance Institutions in Africa, Asia, and Latin America: Empirical Analysis of Operational Efficiency and Costs

This paper presents an empirical analysis of the significance of operational efficiency on MFIs operating costs using both a cross-section and a balanced panel data approach. Using a sample of 750 microfinance institutions operating in Asia, Latin America and Sub-Saharan Africa, the analysis shows that operating costs and efficiency are negatively related and, more importantly, operating costs are lower when these institutions focus more on traditional financial aspects of commercial banking, thereby improving their efficiency, and enhancing the development of the sector and the quality of offered services. The paper shows that the connections between microfinance and commercial banking activity are closer than usually thought.