Efficiency and Mission Drift—Debate Revisited in Indian Context

Abstract

The twin objectives of MFIs are to serve the poorest clients and to become financially self-reliant. It is difficult for the MFIs across the nations to maintain the balance between the social mission of serving the poor and marginalised section such as women and the goal of achieving financial sustainability. To achieve the financial sustainability, MFIs focus on the efficiency indicators and neglect their social mission of serving the poor clients. This phenomenon is known as ‘mission drift.’ In this paper, we have analyzed the technical efficiencies and cost efficiencies of microfinance institutions in Indian context using stochastic frontier analysis in order to get an idea about mission drift mainly by studying the relationship of efficiencies with respect to the percentage of woman borrowers and the average size of the loan. In the literature on mission drift of MFIs, it is ascertained that an increase in loan size could be an indicator of mission drift. We have obtained efficiencies of 86 Indian MFIs for the period 2010–2014. In this study, it is observed that if the loan size increases, both technical and cost efficiency are increased which is a case of mission drift as large loan size is an indicator of targeting on poor clients. Technical efficiency is positively related to the regulation dummy. Both the efficiencies are positively related to age as well as the asset of the MFIs. It implies that experienced MFIs and MFIs who own the assets achieve both the efficiencies. This finding along with the increase in loan size establishes the fact that MFIs who are gaining efficiency in terms of operation are diverting their objective of serving poor clients. We can conclude that efficiency and mission drift are positively correlated in Indian microfinance sector.