Abstract
Microfinance is a well known terminology used for microcredit and financial services for financially deprived community. Through informal, semi-formal and formal ways different institutions has been providing these services. Expenditure of the industry is considered to be high because of its inherent structure, dealing with small loans and having high risk of recovery. Therefore, expected inefficiency is greater than its profit. There are several factors and reason. Through this study, we analyzed few factors which have a positive or negative relation with the inefficiency of Microfinance in Pakistan. Stochastic frontier analysis (SFA) is used for weighing up a relationship between inefficiency and its determinants. It is seen that the average efficiency of this sector is low, on average the highest technical efficiency score is 87 only. Age and number of clients have a negative relationship with inefficiency whereas for other variable's relationship is conditional on Microfinance Institutions (MFIs) working status. The number of women borrowers and average loan balance has been incorporated in the study to analyze the focus of MFIs, either on mission drift or achievement. We found that microfinance banks (MFBs) are drifting away, however, Non Government Organizations (NGOs) and Rural Support Programs (RSPs) are fulfilling their social mission efficiently. We did not find a strong evidence of mission drift in the industry because microfinance banks considered their social mission on second priority. Hence, if MFBs are drifting away from their social services, it is not unexpected.
Highlights
Microfinance (MF) perpetrated it recognition all over the world because of its remarkable achievement (Ledgerwood et al, 2013)
In order to see whether microfinance Institutions (MFIs) in Pakistan are working efficiently or not, we evaluated the MFIs by applying the Stochastic frontier analysis (SFA) technique
Though Microfinance industry in Pakistan is 30 years old having different stories of success and failure, yet due to some major step taken by State Bank of Pakistan and Government of Pakistan, this sector gain supplementary magnitude in the economy of the country for the uplifting of the poor and in income generating activities, more recently
Summary
Microfinance (MF) perpetrated it recognition all over the world because of its remarkable achievement (Ledgerwood et al, 2013). All over the developing world, deep rooted and multifaceted poverty annihilation is becoming a challenge, despite of substantial caution from beginning to end in a mixture of poverty alleviation programs, it is becoming hard to combat the pervasive social and economic poverty. Microfinance is one of the influential tools to defeat poverty, conceptualized by Dr Muhammad Yunus in 1976, in Bangladesh. Afterward, it multiplied in geometric progression and chased by almost all the nations, developing due to its plain, yet effectual structure. Since independence in 1947, Pakistan is mugging stiff challenge due to weak economic base. It has to confront several issues simultaneously; for example, regional conflicts, economic crises, natural disasters, governance issues, conflicts with neighbor countries, etc. The exceedingly unstable security situation, rising energy shortage, a weak tax structure, falling trade, falling investment, and food price inflation are worsening the situation day by day for the country and for the industries working there
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