Technical Efficiency of Microfinance Institutions in India- A Stochastic Frontier Approach

Study attempts to measure the efficiency level and its determinants of a sample of microfinance institutions operating in India by applying stochastic frontier approach for unbalanced panel of 40 microfinance institutions for the 2005-08. It has been found that mean efficiency level of microfinance institutions is quite low but it increases over the period of study. Age of microfinance institutions is positive determinant of efficiency level but size does not matter much. Higher outreach is associated with higher efficiency which negates the general perception of trade off between outreach and efficiency. Microfinance institutions operating in southern states are more efficient than their counterparts. It has been found that regulated microfinance institutions are less efficient.