Impact of Intellectual Capital on Microfinance Institutions’ Efficiency: the Moderating Role of External Governance

Abstract

This study examines the impact of intellectual capital (IC) and its components (human capital, structural capital, and capital employed) on microfinance institutions’ (MFIs) financial and social efficiency. It also determines the moderating impact of external governance on the relationship between IC and MFIs’ financial and social efficiency. It employs the Truncated regression model and Data Envelopment Analysis (DEA), while the Tobit model and Generalized Method of Moments (GMM) were utilized to check the robustness of the estimations. The study uses panel data of 661 MFIs from 86 countries covering 2010–2018 period. The study shows that MFIs are financially efficient rather than socially efficient, albeit MFIs that have high IC can be more financially efficient. Besides, good external governance positively moderates the impact of IC on financial efficiency. The three components of IC have significant effect on MFIs’ financial efficiency, albeit external governance has a significant moderating role on the relationship between value of capital employed and financial efficiency only. As for the social outreach efficiency, this study indicates that IC has a significant positive impact on social outreach efficiency, while external governance has no significant moderating effect on the nexus between IC and MFIs’ social outreach efficiency. The empirical outcomes of this study have useful implications for MFIs’ decision-makers and regulators regarding the need to consider intellectual capital in their quest to enhance the MFIs’ efficiency.