Determinants of the efficiency of Microfinance Borrowers and non-borrowers: Evidence from Pakistan

Imran Qaiser, Nadeem Sohail


This study explores, whether micro finance is being efficiently used or not. As it has been observed that most of the micro finance is used for the non productive purpose. Where as the purpose of lending this credit is to finance the borrowers so that they could enhance their output and inputs. Data Envelopment Analysis was used in this study to find the efficiency scores of the borrowers. There after, Tobit regression was used in the second stage to explore the determinants of the efficiency. A total of 122 traders of micro level including 43 borrowers and 79 non-borrowers were interviewed to fill the questionnaires. While comparing microfinance borrowers with non-borrowers, it was found that microfinance borrowers were significantly more efficient than the small scale borrowers. Average Propensity to Consume (APC) is one of the major factors that has a negative impact on the efficiency. Education was found to have a positive impact on the technical efficiency of the traders. People are generally quite reluctant to take the loan from microfinance institutions due to insufficient amount offered, high interest rate and return of loan in monthly installments. That make the loan less efficient. Therefore it has been recommended the microfinance institutions to overcome these problems.

Key Words: Efficiency, Microfinance, Data Envelopment Analysis, Tobit Model. 

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