10, June, 2014

Social Efficiency in Peruvian Microfinance Institutions: A Semi-parametric Approach

This study by Giovanna Aguilar and Jhonatan Claussen of the Economics Department of the Pontifical Catholic University of Peru (PUCP) aims to assess the social efficiency of microfinance institutions (MFIs) — regulated and non-regulated — in Peru.

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Social efficiency refers to the capacity of MFIs to produce more social outputs — number of poor clients and women served — without using more resources. The Data Envelopment Analysis methodology is used to carry out efficiency analysis. Additionally, the authors analyse the potential determinants of social efficiency of MFIs through a Tobit regression analysis in the context of panel data, in order to investigate whether differences related to the institutional nature of MFIs explain differences in social efficiency achieved by them. The study period covers the years from 2007 to 2011. The results show that non-regulated MFIs are socially more efficient. On the contrary, those MFIs which are within the regulatory scheme show, in most cases, positions distant from the efficiency frontier. Regression analysis shows that being a regulated MFI negatively affects social efficiency levels, a greater presence in rural area positively affects social efficiency levels. Although there is evidence that financial returns could relate positively to social efficiency, this result does not seem to be as robust. At the other extreme, lending technology does not seem to be relevant to explain social efficiency.

Authors:  Giovanna Aguilar and Jhonatan Claussen
Orginal publication date: July 2013
Publisher: Departament of Economics - Pontificia Universidad Católica del Perú (PUCP)

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