Performance of Microfinance Institutions in Tanzania: Integrating Financial and Non financial Metrics

Abstract

The aim of the study was to evaluate the performance of Microfinance institutions in Tanzania by integrating financial and nonfinancial performance metrics. The study used a balanced scorecard approach with five dimensions financial, social, customer, learning and growth and internal business process. The findings of the study indicate low average financial performance among Microfinance institutions reviewed. On average, the institutions reviewed were not sustainable with low relative productivity and low profitability. The average nonfinancial performance was high indicating that Microfinance institutions were better performing in nonfinancial measures compared to financial measures. The overall financial performance indexes show that commercial banks outperform traditional Microfinance institutions. The findings show a positive correlation between overall financial performance with nonfinancial performance and overall performance. This indicates that tradeoff does not exist on financial and nonfinancial performance when measured in a collective way. The results on individual financial performance metrics show a positive correlation with internal business process and learning and growth, and negative correlation with social and customer perspective. The results also show a positive correlation between the four dimensions of nonfinancial performance and with the overall financial performance. The study recommends that the use of balanced scorecard has high potential in the evaluation of performance of Microfinance institutions. Microfinance institutions need to balance financial and nonfinancial performance to ensure survival in a competitive market while meeting their social objective. Balanced scorecard provides the potential to investigate the overall performance of Microfinance institutions from the two performance dimensions.

Keywords: Microfinance institutions, Performance measurements, Balanced Scorecard