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Title: Outreach and efficiency of the microfinance institutions in the Palestinian economy
Other Titles: الشمولية و الكفاءة في مؤسسات التمويل الصغير في الإقتصاد الفلسطيني
Authors: Al-Bitawi, Wafaa Y.
Keywords: Microfinance - Palestine - Case studies;Microfinance - Palestine - Evaluation;Small business enterprises - Palestine - Case studies
Issue Date: 2016
Abstract: This study investigates the outreach and cost efficiency of seven microfinance institutions operating in the Occupied Palestinian Territories, for the period 1999- 2014 using Stochastic cost frontier. The efficiency is estimated according to the following variables: legal form of MFIs, MFIs size, focus of MFIs on lending females, and grants status. Determining the cost efficiency of MFIs will concentrate efforts to enhance this efficiency, and to locating the different problems facing the microfinance institutions. This will help them to avoid these problems in the future and improve MFIs operations .Additionally, finding the nature of outreach- efficiency relationship will help MFIs to know the effects of their trial to achieve social goals on their financial goals and sustainability. Subsequently, taking the appropriate actions to achieve the social and financial goals and eliminate the negative effects of each goal on the other (if found). The results show that the average cost efficiency is 96.4% with a downward trend during the period. Furthermore, results show that UNRWA has the highest cost efficiency scores, followed by institutions with legal form of Non-Bank Financial Institution (NBFIs), while Non-Governmental Organizations (NGOs) show the lowest cost efficiency. Larger MFIs are more cost efficient than smaller ones. The average cost efficiency for MFIs that focus on lending females is less than other MFIs. Finally, MFIs that do not consider grants as main sources of funding are less cost efficient than MFIs that mainly depend on grants to finance their operations. The analysis of outreach-efficiency relationship shows that there is a trade-off between outreach (measured by percentage of females’ borrowers) and cost efficiency. Other variables that have significant impact on MFIs cost efficiency are included in this study; those variables include debt to equity ratio (DER), where high DER has a negative effect on cost efficiency. The study also finds that newer MFIs are more efficient than the older ones. Finally, loan loss rate (LLR) has no significant impact on MFIs cost efficiency
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