Is there a Reciprocity between Social and Financial Efficiency? A Case of Vietnam Microfinance Institutions

Abstract

Efficiency evaluation does not mean how MFIs must gain, instead of how well MFIs manage their resources to achieve the dual missions of microfinance: social and financial objectives. This paper is an application of Data Envelopment Analysis (DEA) to contribute to different efficiency scores to specify missing aspects in microfinance study in Vietnam. MFIs in Vietnam are generally efficient with high overall technical efficiency, and NGO-sponsored Microfinance Programs are more socially efficient than other types. However, the efficiency scores have shown a significant difference between the social and financial performance. Overall social scores only reached 54.9%, while the financial scores reached 92.8%. The operational strategies of selected MFIs appear to be unsuccessful in serving poor women and reducing poverty. Instead, profitable activities, such as interest-based lending, are more concentrated. It is consistent with the view that in order to meet the social responsibilities, MFIs have to be at first financially sound. The evaluation of different efficiency forms also discovered the leading performers in the microfinance sector. These MFIs attained high-efficiency scores on social and financial aspects, referring to the capability on cost control, operation improvement, and management activities.

Keywords: Microfinance, Social efficiency, Financial efficiency, Reciprocity, Vietnam

DOI: 10.7176/RJFA/10-20-13

Publication date:October 31^st, 2019