The efficiency of Microfinance Institutions compared to Norwegian Savings Banks : Looking outside the industry in the pursuit of Microfinance efficiency and sustainability
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Microfinance institutions (MFIs) are seeing high growth in their industry, but faces challenges when it comes to financial viability. The Norwegian savings banks have one of the world’s most efficient banking systems and have focused on cost-efficiency over a period of 50 years. We examine the possibilities for MFIs being more efficient by learning from Norwegian savings banks. We employ a large dataset of 473 MFIs from 77 different countries spanning 15 years, and 81 Norwegian savings banks spanning 20 years. We find that both industries statistically improve their efficiency with time by reducing operational expenses in percent of total assets. As the operational expenses decrease with time, we additionally test the effect of the MFIs’ age in relation to this decrease. Our panel regressions show that the age of an MFI affect neither operational expenses, nor portfolio yield. This result provides reasons to believe that age does not affect the operational expenses. Further, we find differences in the financial statements and ratios, whereas Norwegian savings banks tend to be more stable, while MFIs are converging towards them. Lastly, we find that technology, domestic cooperation and alliances are the primary actions contributing to the low cost structure in Norway, and that MFIs can learn from this.
Master thesis Business Administration - University of Agder 2016