Gender diversity and profit efficiency of microfinance institutions: A Sub-Saharan study

by Tarekegn Tariku Ebissa, Arega Seyoum Asfaw

Irrespective of the promising opportunity to improve profit efficiency by at least 73%, microfinance institutions operating in Sub-Saharan Africa are efficient only for 27%, far below the average value. The conclusion is drawn after analyzing the profit efficiency of the microfinance institutions using the stochastic frontier approach applied to data obtained from 128 microfinance institutions operating in 34 Sub-Saharan African countries. The study results suggest the presence of uniform profit efficiency experience across time among microfinance institutions. Microfinance institutions operating in low-income countries and credit union form microfinance are economically more efficient than their counterparts. Furthermore, the profit efficiency of microfinance institutions is significantly affected by total assets, cost per loan, loan per staff, legal status, and the county’s income group of microfinance. Notably, the profit efficiency of microfinance institutions is adversely affected by the presence of female borrowers and female loan officers suggesting that gender diversity plays a role in the efficiency of microfinance institutions. Finally, we recommend that the managing body of microfinance work more on improving labor efficiency, earning asset utilization, loan collection efficiency, women’s involvement and the hottest technology implementation.