How Productive Are the Microfinance Institutions in Bangladesh? An Application of Malmquist Productivity Index

Rana, Md Sohel, Banna, Hasanul, Mia, Md Aslam, Ismail, Izlin Binti and Ismail, Mohd Nazari Bin (2022) How Productive Are the Microfinance Institutions in Bangladesh? An Application of Malmquist Productivity Index. Studies in Microeconomics, 10 (2). pp. 155-177. ISSN 2321-0222

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Abstract

The poverty reduction and financial inclusion of Sustainable Development Goals (SDG) by 2030 can be significantly facilitated by the microfinance industry. However, it is pertinent to assess the sustainability of microfinance institutions (MFIs) in serving this purpose. The estimation of productivity of MFIs in Bangladesh gives a glimpse of their ability to fulfil the dual objectives of financial sustainability and social outreach. Hence, this study aims to measure the productivity of MFIs in Bangladesh using secondary data obtained from the Microfinance Information Exchange (MIX) market. The study employs Malmquist Productivity Index (MPI), which is an extension of the Data Envelopment Analysis (DEA) to estimate the overall, social and financial productivities of 26 MFIs in Bangladesh during the period from 2009 to 2018. In general, this study revealed that majority of the MFIs’ overall productivity score varies between 0.9 and 1.20. Moreover, we observed that the social and financial productivities of MFIs in Bangladesh progressed during the entire study period, except for the years 2011 and 2017. This development may be attributed to the average growth in catch-up and technological effect witnessed during the study period. The study has also applied sensitivity analysis by changing the output to evaluate the robustness of the overall productivity results; consequently, the new estimates followed a similar pattern (mostly) and further corroborate the outcomes of this study.