Cost Efficiency of Microfinance Institutions in Peru: A Stochastic Frontiers Approach

2006. Latin American Business Review (LABR). Vol. 7, N° 2, Pp 41-70

Oswaldo Ramirez T, Jorge Gregoire C

Abstract:

This paper analyzes the efficiency of Microfinance Institutions (MFIs) in Peru between 1999 and 2003 by estimating a stochastic cost frontier. The main findings show that MFIs with the largest assets tend to post the highest efficiency levels, and that MFIs operating in less concentrated markets tend to be more efficient. Thus, the cost efficiency of MFIs is affected by average loan size, proportion of net assets, financial sufficiency, financial leverage, business experience and proportion of farm loans.

Palabras claves: Cost efficiency, stochastic frontier, microfinance institutions.

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