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

Tarekegn Tariku Ebissa ¹, Arega Seyoum Asfaw ²

⁰Department of Accounting and Finance, Wallaga University, Nekemte, Ethiopia.

Plos One +

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August 5, 2024

View abstract on PubMed

Summary

Microfinance institutions in Sub-Saharan Africa show low profit efficiency (27%), despite potential gains. Key factors influencing efficiency include country income, legal status, and gender diversity, highlighting areas for improvement.

Area Of Science

Economics
Development Studies
Financial Management

Background

Microfinance institutions (MFIs) in Sub-Saharan Africa (SSA) exhibit suboptimal profit efficiency, operating significantly below potential.
Despite the critical role of MFIs in economic development, their efficiency remains a concern across the region.

Purpose Of The Study

To analyze the profit efficiency of MFIs in Sub-Saharan Africa.
To identify key determinants of profit efficiency within these institutions.
To provide recommendations for enhancing MFI performance in the region.

Main Methods

Stochastic frontier approach (SFA) applied to panel data.
Analysis of data from 128 MFIs across 34 Sub-Saharan African countries.
Econometric modeling to assess the impact of various factors on profit efficiency.

Main Results

Overall profit efficiency for SSA MFIs is low at 27%, with significant room for improvement.
Institutions in low-income countries and credit union models demonstrate higher economic efficiency.
Profit efficiency is significantly influenced by institutional size (total assets), operational costs (cost per loan), staffing (loan per staff), legal status, and country income level.
Adverse effects on efficiency were observed with higher female borrower and loan officer representation, suggesting gender diversity impacts performance.

Conclusions

Sub-Saharan African MFIs are underperforming in terms of profit efficiency.
Factors such as operational scale, cost management, legal structure, and country economic context are critical determinants of MFI efficiency.
Gender diversity, specifically the involvement of women as borrowers and staff, appears to negatively correlate with profit efficiency, warranting further investigation and strategic intervention.
Recommendations focus on improving labor and asset utilization, loan recovery, technology adoption, and strategic integration of women in MFI operations.