Operational Efficiency, Corruption and Political Stability in Microfinance

Confirming the results of Zacharias and ABM (2010), a first important finding is the presence of economies of scale in the microfinance market. This can be seen in both the cross-sectional and the panel data analysis. Indeed, an increase in the size of the firms leads to improvements in the efficiency of MFIs. The evidence is clear in any model used. In particular, in every continent and time period examined, an increase in the value of the Gross Loan Portfolio is always an important determinant of the decrease in costs. The same evidence is linked to an increase in the value of the average loan, which then leads to a costs reduction. This situation, as we have repeatedly emphasized, is a small paradox since the loans granted by the MFIs consists of very small amounts. Reading, instead, the results for both the cross-section and the panel data analysis, it is clear that efficiency improves with an increase in the value of the average loan granted. This does not inevitably mean that the MFIs improve when they move away from the original idea of microfinance, but stresses the importance of finding a balance between profit, stability and the pursuit of their social mission. In this sense, therefore, the size component leads to better efficiency, and cannot be overlooked by institutions, which must be necessarily attentive to this aspect.