Financial Inclusion, Deepening and Efficiency in Microfinance Programs: Evidence from Bangladesh

  • Md Aslam Mia
  • Lucia Dalla Pellegrina
  • Patrick Van Damme
  • Mahinda Wijesiri
Original Article


The economic literature provides evidence that growth is associated with positive performance of the financial sector. This aspect is particularly important for developing countries. This study aims to investigate whether, in an environment of growing competition and regulation, the maintenance of their social mission may have led microfinance institutions (MFIs) to compromise their performance, in terms of efficient production of credit services. To this purpose, we use a two-stage approach to analyze the relationship between outreach and efficiency of MFIs in Bangladesh. In the first stage, a dynamic data envelopment analysis is exploited to measure the efficiency of MFIs from 2009 to 2014. The results show that most of the MFIs are operationally inefficient over the period, suggesting a considerable potential for future improvement. In the second stage, the study examines the potential trade-off between MFIs’ commitment to financial inclusion and depth of outreach on the one hand and efficiency on the other hand, using a double bootstrapping methodology that helps in limiting the problems arising from the endogenous nature of the measures of outreach with respect to efficiency. The results show that financial inclusion is positively associated with MFIs’ efficiency, whereas the relationship between deepening and efficiency turns up negative, providing partial evidence in support of ‘mission drift’ in the Bangladesh microfinance industry. This may be indicative of the fact that MFIs with stronger commercial objectives have expanded their business and their margins of efficiency to compete with other intermediaries. In contrast, the MFIs with a more intense social strategy may have suffered a decrease in their operating efficiency in order to maintain their social mission. Policy implications point towards a greater degree of awareness on the part of the regulatory authorities of the consequences of imposing constraints on the operating mechanisms of the microfinance industry, such as interest rate caps. We also suggest that rules disciplining competition should not be uniform, but rather tailored to specific outreach indicators.


Microfinance Financial inclusion Efficiency Bangladesh 


Dans la littérature économique, on trouve ample évidence que la croissance est associée avec une performance positive du secteur financier. Ce dernier est particulièrement important pour les pays en voie de développement. Cette étude analyse si, dans un environnement caractérise par une hausse de la compétition et de la régulation, les institutions de microfinance (acronyme anglaise: MFIs) ont dû compromettre leur performance (en termes de production effective de services de crédit) afin de maintenir leur mission sociale. Dans cette étude, on utilise une approche en deux étapes pour analyser la relation entre l’efficacité et la portée communautaire des MFIs en Bangladesh. Dans la première étape, une analyse dynamique d’enveloppement des données (acronyme anglaise: DEA) a été utilisé pour mesurer l’efficacité des MFIs entre 2009 et 2014. Les résultats montrent que la plupart des MFIs sont opérationnellement inefficaces pendant cette période, ce qui suggère un considérable potentiel d’amélioration. Dans la deuxième étape, l’étude examine le possible compromis entre deux aspects des opérations des MFIs: d’un côté, leur engagement d’inclusivité et portée communautaires; de l’autre, leur efficacité. Pour cette deuxième étape, la méthodologie utilisé (« double bootstrapping ») limite les problèmes dérivants de la nature endogène des mesures de la portée communautaire envers les mesures de l’efficacité. Les résultats indiquent que l’inclusivité financière est positivement associée à l’efficacité des MFIs. Cependant, la relation entre la portée communautaire et l’efficacité est négative. Cela offre une preuve partielle a l’appui de la théorie du « détournement de mission » en acte dans l’industrie micro financière en Bangladesh. On peut théoriser que les MFIs avec des objectifs commerciaux plus forts ont élargi leurs affaires et augmenté leur efficacité pour compétir avec d’autres intermédiaires. Cependant, les MFIs avec une stratégie sociale plus forte ont diminué leur efficacité opérationnelle afin de maintenir leur mission sociale. Les implications politiques tendent vers la nécessité d’une conscience plus marqué (de la part des autorités réglementaires) à propos des conséquences entrainés par l’imposition de certaines contraints sur les mécanismes opératifs de l’industrie micro financière, tels qu’un plafond des taux d’intérêt. On suggère aussi que la réglementation compétitive doit prendre en considération les spécificités des indicateurs de portée communautaire.



We are grateful to the Managing Editor (Prof. Natalia Lorenzoni), the area editor (Prof. Wendy Olsen) and three anonymous referees for their constructive suggestions on earlier drafts of this manuscript. Any remaining errors are solely the authors’ responsibility.


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Copyright information

© European Association of Development Research and Training Institutes (EADI) 2018

Authors and Affiliations

  • Md Aslam Mia
    • 1
  • Lucia Dalla Pellegrina
    • 2
  • Patrick Van Damme
    • 3
    • 4
  • Mahinda Wijesiri
    • 5
    • 6
  1. 1.School of Management (SOM)Universiti Sains Malaysia (USM)Pulau PenangMalaysia
  2. 2.Department of Economics, Management and Statistics (DEMS)University of Milano-BicoccaMilanItaly
  3. 3.Laboratory of Tropical and Subtropical Agriculture and Ethnobotany, Department of Plants and Crops, Faculty of Bioscience EngineeringGhent UniversityGhentBelgium
  4. 4.Faculty of Tropical AgriSciencesCzech University of Life Sciences PraguePrague 6 – SuchdolCzech Republic
  5. 5.Department for Management of Science and Technology DevelopmentTon Duc Thang UniversityHo Chi Minh CityVietnam
  6. 6.Faculty of Business AdministrationTon Duc Thang UniversityHo Chi Minh CityVietnam

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