Abstract
The main objective of this study is to assess the impact of unobserved heterogeneity on microfinance social efficiency analysis. Based on recent nonparametric techniques and directional distances, we identify a latent heterogeneity factor related to the microfinance institute (MFI) manager’s ability to promote women, independent of MFI size. We test for the significance of this unobserved factor and analyze the impact of MFI social inefficiency measures. Using a cross-country sample of 501 MFIs in 2011 from six main regions of the world, our findings reveal a significant effect of unobserved heterogeneity on the frontier and hence stress the importance of subjective factors in defining the set of production possibilities. We assess the robustness of our findings with the considered profit-oriented status and analyze the link between our unobserved heterogeneity factor and institutional and socioeconomic indicators.
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Notes
Note that the analysis performed below has also been repeated in 2010 and 2012 to check for robustness of our results. The results were consistent with 2011 but we chose not to include them in the paper to save space.
This explains in particular why our sample size is smaller than in Fall et al. (2021). Indeed, we have introduced several new variables to characterise the unobserved heterogeneity (one auxiliary variable and six external socio-economic variables) and datapoints for these variables were sometimes missing for the year 2011. Dropping cross-sections with missing data lead us to base our analysis on a sample of 501 MFIs.
Note that, as suggested by a peer reviewer, we could have completed the analysis by using the number of female loan officers as an additional observed heterogeneity factor [as in Fall et al. (2021)]. We chose a single heterogeneity factor and favored the representation of women on the boards of directors for one main reason: targeting women is a strategic decision in MFIs and this strategic decision must be ratified by the board of Footnote 4 Continued
directors. Having women represented on the boards of directors can therefore encourage MFIs to deliver more financial services to women (financial inclusion of women).
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Fall, F.S., Tchakoute Tchuigoua, H., Vanhems, A. et al. Investigating the unobserved heterogeneity effect on outreach to women: lessons from microfinance institutions. Ann Oper Res 328, 1365–1386 (2023). https://doi.org/10.1007/s10479-023-05353-y
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DOI: https://doi.org/10.1007/s10479-023-05353-y