Women’s participation and cost efficiency in microfinance institutions: a Sub-Saharan study

Abstract

AbstractThis study aims to examine the factors influencing the cost efficiency of microfinance institutions in Sub-Saharan African countries. A ten-year unbalanced panel data consisting of 128 microfinance institutions from 34 countries was used for the analysis. The study included all microfinance institutions in Sub-Saharan Africa that reported to the Microfinance Information Exchange database and had financial reports for at least five consecutive fiscal years between 2009 and 2018. The cost efficiency of the institutions was investigated using a stochastic frontier approach. The findings indicate that microfinance institutions operating in Sub-Saharan African countries are operating beyond the cost frontier line, with only 13% demonstrating efficiency. Key determinants of cost efficiency in microfinance institutions in SSA include the size of the institution, cost per borrower, women’s participation, institutional type, and country income category. Notably, increased women’s participation as board members, loan officers, and borrowers significantly improves cost efficiency. Microfinance institutions are encouraged to transform their custom practices in line with the rapid changes in the technology and techniques of modern financial service provisions and ensure the involvement of women in board members, supervisory positions and borrowing services. We also recommend that institutions appoint women selectively on nominated work positions.