Efficiency and productivity indicators are measures that show how well the institution is streamlining its operations. Productivity indicators reflect the amount of output per unit of input, while efficiency indicators take into account the cost of inputs and or the price of outputs. These indicators cannot be easily manipulated by the management decisions, hence are more comparable across MFIs. MFI efficiency is better measured by the operating expense ratio. The borrowers per staff ratio measures productivity. The operating expense ratio measures the institutional cost of delivering loan services. The lower the operating expense ratio, the higher the efficiency of an institution. The ratio is affected by portfolio size, loan size and staff salaries costs.

The borrower per staff ratio measures the productivity of the institution’s staff. The higher the ratio, the more productive the institution. The total staff refers to the total number of people working full time in an MFI. Total number of borrowers refers to individually identifiable borrowers who have at least one current outstanding loan with the institution. Consequently, a solidarity loan with two members is considered as two borrowers. Multiple loans to the same borrower are considered as one borrower (Pandey, 1999, Microrate, 2002).

MFI efficiency is therefore better measured through two ratios: Operating Expense Ratio and the Borrowers per Staff Ratio.

Operating Expense Ratio= Operating Expenses ÷ Average Gross Portfolio

The global MFI industry average is 30%. (see Microrate, 2002)

The borrower per staff ratio was computed as follows:

Borrowers per Staff Ratio= Number of Borrowers÷ Total Staff

The global MFI industry average is 150 borrowers per staff. (see Microrate, 2002)

 In addition to MICRORATE apptoach, you may also check other measures by other rating agencies’ indicators such us GIRAFE by PlaNet Finance; CAMEL by ACCION; PEARL by WOCCU, and even M-CRIL.

but if we talk about social , financial and technical efficiency of microfinance institutions, than how can we measure it?

efficiency of MFI ought to have an additional parameter:

improvement in net income of the borrower per unit of loan

Dear David:

                  Microfinance looks at helping poor people improve their situation. So, although they work in banking they are not normal banks, Social aspects are importante for them. You may find interesting information about this in several papers by Gutierrez Nieto, Serrano Circa and Mar Molinero. The title of them talks about the social efficiency of microfinance intitutions. See also a concept coined by Roy Mersland, "microfinance plus", meaning microfinance in several institutions comes after social matters.

Regards

Gustavo Concari

Thank you all for your contributions. I should be sharing a paper soon on MFI efficiency for your critique. David

I believe that the comparison of performance measures in microfinance institutions with banks measures are not producentes.

From 2005The CGAP and the Ford Foundation intensify the terminology of the use of the social dimension in conjunction with the financial operating as two main criteria to evaluate the performance of MFIs.

I think the text "Measuring performance of social and non-profit Microfinance Institutions (MFIs): An application of multicriterion methodology" can help you

I study performance in microfinance institutions in Brazil

Kindly assist I need variables to measure credit and also to measure poverty reduction