Technical efficiency of microfinance banks in South-West, Nigeria: Input and output oriented measures

Abstract

Against the backdrop of poor performance of Nigerian microfinance banks (MFBs), this paper investigates their technical efficiency between 2006 and 2010, after the launch of the microfinance policy of 2005. The growth in outreach of the MFBs, in terms of their average number of clients grew between 10.57 and 21.99% over the study period. The depth of financial services offered by the MFBs showed little innovation and ingenuity on the part of the MFBs as micro-credit was the only product generic to all the MFBs. The MFBs mean annual technical efficiency score was obtained as 0.4643 under the input oriented measure and was higher than their mean annual efficiency score of 0.4112 under the output oriented measure. The technical efficiency estimates under the input oriented measure further revealed that at full efficiency over the study period, the sampled MFBs could have increased their number of borrowers per staff member by 30,408 clients and number of savers per staff member by 17,810 clients, while slacks estimation under the output oriented measure at full efficiency of the sampled MFBs revealed 5,425 clients and 1,432 clients as possible increase in number of borrowers per staff member and number of savers per staff member respectively.

Keywords: Microfinance banks, outreach, technical efficiency.