Efficiency Of Microfinance Institutions In China

Microfinance Institutions(MFI) refers to a group of financial institutions which provide a range of financial services to low-income groups. Created by Yunus in 1970, Microfinance have been considered a powerful weapon to reduce poverty.This paper first outlined the stages of development and current situation of microfinance institutions in China, and analysis the existing development mode and policy change of microfinance institutions. Then an efficiency theory of MFI in China is developed to discuss the definition and measurement of efficiency, the factors affecting the efficiency of MFI such as property rights, internal governance and operation mode. Potential conflict between efficiency and social benefit is also brought up and further discussed.A two-stage empirical analysis is carried out using annual data of 74 Chinese Microfinance Institutions in three years(2010-2012) from MIX. First a Data Envelop Analysis is made to calculate the productive efficiency of MFI under both production approach and intermediation approach. Then a tobit regression model is built to answer two questions:what are the factors that may influence the efficiency of MFI and is there a conflict between efficiency and social benefit.The results of the empirical analysis indicate that Microfinance Institutions in China is operating with low efficiency, and MFIs in China are more efficient as an intermediation rather than production unit. Improving management level and risk coverage of MFIs has positive impact on efficiency. The results also indicate that there is serious conflict between efficiency and social mission to reduce poverty of MFI in China. The key challenge for MFIs in China is how to improve efficiency and guarantee the implementation of poverty alleviation mission at the same time.