Is there a Reciprocity between Social and Financial Efficiency? A Case of Vietnam Microfinance Institutions

Dolores Acevedo-Garcia

doi:10.7176/rjfa/10-20-13

Abstract

Efficiency evaluation does not mean how MFIs must gain, instead of how well MFIs manage their resources to achieve the dual missions of microfinance: social and financial objectives. This paper is an application of Data Envelopment Analysis (DEA) to contribute to different efficiency scores to specify missing aspects in microfinance study in Vietnam. MFIs in Vietnam are generally efficient with high overall technical efficiency, and NGO-sponsored Microfinance Programs are more socially efficient than other types. However, the efficiency scores have shown a significant difference between the social and financial performance. Overall social scores only reached 54.9%, while the financial scores reached 92.8%. The operational strategies of selected MFIs appear to be unsuccessful in serving poor women and reducing poverty. Instead, profitable activities, such as interest-based lending, are more concentrated. It is consistent with the view that in order to meet the social responsibilities, MFIs have to be at first financially sound. The evaluation of different efficiency forms also discovered the leading performers in the microfinance sector. These MFIs attained high-efficiency scores on social and financial aspects, referring to the capability on cost control, operation improvement, and management activities. Keywords: Microfinance, Social efficiency, Financial efficiency, Reciprocity, Vietnam DOI : 10.7176/RJFA/10-20-13 Publication date :October 31 st , 2019

Highlights

Microfinance institutions (MFIs) are hybrid organizations with for-profit and social nature
The results reveal some critical features. 17 out of 27 MFIs are on the technical efficiency frontier under the CCR model (TE = 1.00)
The MFIs remaining efficient under both models such as FWD, ACE, M7MFI are good at using the inputs to generate lots of loans to targeted clients

Summary

Introduction

Microfinance institutions (MFIs) are hybrid organizations with for-profit and social nature. Their operations have been forced to both improve the socio-economic wellbeing and set up income-generating activities of the deprived society/poor communities who are often ignored by the conventional banking system. Many commercial banks and private sectors have recently engaged in MFIs with more efficient operations and better use of resources. Because of the scare and limited resources, investors require for efficient use of funds for microfinance activities in the long run like other sectors (Rosenberg & Nathan, 1994; Reynolds & Thompson, 2002; Bruett et al, 2005; Kipesha, 2013). Efficient MFIs will perform well in allocating the input resources such as assets, personnel (number of loan officers), and funds to produce relevant outputs such as the number of clients, gross loan portfolio, and poverty outreach (Bassem, 2008, 2014)

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Results

Conclusion