Technical efficiency and business maturity: evidence from Chinese and Indian microfinance institutions

Ya Wu; Cesar L. Escalante; Xiaofei Li

doi:10.3362/1755-1986.2016.007

Technical efficiency and business maturity: evidence from Chinese and Indian microfinance institutions

This study utilized data envelopment analysis (DEA) techniques in estimating technical efficiency scores to analyse the goal prioritization schemes of Chinese and Indian microfinance institutions (MFIs) operating at different levels of maturity. Results of single-output efficiency analyses indicate that the more mature Indian MFIs are able to attain higher efficiency than the younger Chinese MFIs when the social outreach goal is prioritized. Interestingly, business maturity does not necessarily result in high efficiency under a financial sustainability goal. Chinese MFIs’ efforts to attain financial sustainability could possibly be curtailed by existing institutional constraints that regulate their territorial expansion, fund sourcing, and loan pricing decisions. Indian MFIs, on the other hand, are confronted with strong pressures to expand quickly owing to the industry’s increasing commercialization and heightened competition, especially in seeking cheaper sources of funds. When MFIs balance the social outreach and financial sustainability goals, Indian MFIs tend to operate more efficiently than Chinese MFIs.

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