Multidimensionality of performance dynamics in microfinance institutions: evidence from emerging economies

Microfinance Institutions (MFIs) have been proven to be an effective organizational channel to alleviate poverty and create social value in many countries. The cost-effective provision of financial services to underprivileged communities has caused the industry to grow over decades. However, the low performance of MFIs has hindered the industry from reaching its maximum. Moreover, studying the multidimensionality of MFIs is a recent topic, with limited attention to the environmental bottom line and dynamic evaluation. Therefore, this study aims to address these gaps by applying the Malmquist Index (MI), with further investigation of the source of performance dynamics. We apply an unbalance panel of 53 MFIs across three major emerging countries for the years 2009-2015 (214 observations). An approach for dealing with unbalanced data is also developed and used. The results suggest that the financial and environmental performance have slightly improved due to the progress in technical efficiency. Nonetheless, the dynamics of overall performance, represented by the change in overall productivity, has deteriorated in line with social performance deterioration. Unlike financial and environmental performance, technological advances have a positive impact on social and overall performance.