Determinants of Total Factor Productivity in Microfinance Institutions: Evidence from Bangladesh

This chapter aims to evaluate productivity and determinants of productivity in microfinanceMicrofinance institutions (MFIs) to support the ongoing debate on sustainabilitySustainability in the microfinance industry. Hence, the longitudinal data of 169 MFIs, covering the period from 2009 to 2014, were collected from the Microcredit Regulatory Authority annual reports in BangladeshBangladesh . This study used the two-stage semi-parametric approach. In the first stage, the Malmquist Productivity Index (nonparametric) was employed and it was found that the microfinance industry in Bangladesh observed an average of 3.6% productivity progress per annum, with a declining trend towards the end of the study period. In the second stage, the regression analysis (parametric) showed that institutional characteristics, macroeconomic factors and external sources of funds significantly affect productvity of MFIs. Findings and policy implications are further discussed.