Evaluating Financial Efficiency of Microfinance Institutions: Evidence From India

ABSTRACT The present study uses the MIX Market database to evaluate the financial efficiency of 30 diverse microfinance institutions (MFIs) in India based on their legal status, such as banks, NBFIs, NGOs, and credit unions from 2015 to 2019, which is rare in the existing research. To enhance the reliability of our financial efficiency assessments, we employed an intricate econometric method using two‐stage network data envelopment analysis (DEA) and bootstrap techniques. We additionally applied the Malmquist Productivity Index (MPI) to determine changes in efficiency over time in the Indian context. The research provides valuable insights into MFI performance using network data envelopment analysis, the Bootstrap model, and the Malmquist Productivity Index. The results yield that Bharat Financial, Rashtriya Seva Samiti, and Lok Biradri Trust are the most efficient institutions, and Annapurna Co‐operative has the lowest efficiency of 0.6920 per overall average financial efficiency score, whereas Dhosa has the most significant overall MPI score. On average, these MFIs have a financial efficiency rate of 85.5%, with a mean efficiency score of 0.835 in stages 1 and 2 and 0.97544 total MPI. Hence, the MFIs are financially efficient and sustainable. These findings emphasize and provide invaluable insights to the government and industry practitioners in their policy‐making to improve the essential role that MFIs play in promoting sustainable development and accomplishing the goal of poverty alleviation, contributing to the economic development and empowerment of poor people.