Microfinance institution costs: effects of gender, subsidies and technology

The purpose of this paper is to present a statistical examination of the factors affecting the performance of microfinance institutions (MFIs) operating in Eastern Europe and Central Asia.

Data on MFIs operating in Eastern Europe and Central Asia during the period 1999‐2004 were used in this study. A statistical analysis of the performance of these MFIs was conducted utilizing a cost function approach, which was estimated using seemingly unrelated regressions.

During the study time period, MFIs involved in the provision of group loans and with a higher percentage of loans to women had lower costs. The presence of subsidies is also found to be associated with higher MFI costs.

Providing financial services to women, and use of group loans was associated with lower costs in Eastern Europe and central Asian microfinance institutions in the early 2000s.

This study focuses exclusively on efficiency of MFIs operating in Eastern Europe and Central Asia, and the first to explicitly measure outreach efficiency when output is measured by number of active clients, rather than the value of the overall MFI lending portfolio.