Measuring Financial and Social Outreach Productivity of Microfinance Institutions in Bangladesh

The productive employment of scarce resources to achieve financial sustainability and social outreach among microfinance institutions (MFIs) has become a key concern of policymakers and practitioners. In view of its importance, this study adopted the Malmquist total factor productivity approach with a balanced panel dataset of 162 MFIs ranging from 2007 to 2012 to measure productivity performance. The results indicate that the microfinance sector in Bangladesh exhibited 4.3 % in overall productivity progress, attributed mainly to better managerial efficiency. Further splitting the output into financial and social outreach, known as 'dual mission', this study observed 3.9 and 5 % productivity progress per annum respectively, with five best practising MFIs being identified due to their balanced growth in both objectives. Although, depth of social outreach productivity (proxy by average loan size) recorded successive progress during the study period (2007-2012), breadth of social outreach productivity (proxy by number of savers) improved little due to the lack of innovative savings products. Thus, basing their designing of comprehensive savings products and development of appropriate synergies on the best five performing MFIs, the government and respective authorities should stimulate the transfer of their innovative practices to other MFIs to enhance sectorial growth and better serve the poor community.