Microfinance is the provision of financial serves to the poor people with very small business or business projects (Otero, 1999 cited in Marzys, 2006). Commercial banks are not able to cater to the financial needs of the poor people due to lack of collateral security and also due to information asymmetries and hence a very small proportion of the world population has access to financial instruments.
Robinson (2001 p. 9) defines microfinance institution as small scale financial services primarily credit and saving provided to people who farm or fish or herd who operate small enterprises or microenterprises where goods are produced, recycled, repaired or sold; who provide services; who work for wage and commission; who gain income from renting …show more content…
Other than ratio analysis, Data Envelopment analysis (DEA), a non parametric technique and Stochastic Frontier Analysis, a parametric and econometric model are the two alternative approaches available for efficiency analysis of financial institutions.
Currently, majority of studies on the performance of MFI (e.g. Tucker and Miles 2004, Koveos and Randhawa, 2004) are based on financial ratios identical to those used to measure performances in banking, e.g., the CAMEL, PEARLS and GIRAFFE ratios. Yet, as some authors (Athanassopoulos and Ballantine, 1995; Gregoriou, Messier and Sedzro, 2005, etc) have stressed that ratio analysis cannot be able to capture sufficiently the multidimensional aspect that banking activities and decisions (and by extension those of MFI) have. Indeed, this type of analysis is based on the assumption of linearity and a constant return to scale, which means that only
Robinson (2001 p. 9) defines microfinance institution as small scale financial services primarily credit and saving provided to people who farm or fish or herd who operate small enterprises or microenterprises where goods are produced, recycled, repaired or sold; who provide services; who work for wage and commission; who gain income from renting …show more content…
Other than ratio analysis, Data Envelopment analysis (DEA), a non parametric technique and Stochastic Frontier Analysis, a parametric and econometric model are the two alternative approaches available for efficiency analysis of financial institutions.
Currently, majority of studies on the performance of MFI (e.g. Tucker and Miles 2004, Koveos and Randhawa, 2004) are based on financial ratios identical to those used to measure performances in banking, e.g., the CAMEL, PEARLS and GIRAFFE ratios. Yet, as some authors (Athanassopoulos and Ballantine, 1995; Gregoriou, Messier and Sedzro, 2005, etc) have stressed that ratio analysis cannot be able to capture sufficiently the multidimensional aspect that banking activities and decisions (and by extension those of MFI) have. Indeed, this type of analysis is based on the assumption of linearity and a constant return to scale, which means that only