Social Efficiency in Microfinance Institutions: Identifying How to Improve It

Abstract This article analyses the determinants for social and economic efficiency in microfinance institutions using a seemingly unrelated regression. We find two factors that improve their relative efficiency: legal status and target market; however, age and scale are not clear determinants. The main contribution of this paper is to engage microfinance institutions to achieve the desired social efficiency without giving up economic efficiency as the two can be complementary; moreover, it is possible to be efficient as a Non Banking Financial Institution/Non‐Governmental Organization with small size and low‐end target, at least. The paper is a new contribution in line with the so‐called paradox of social cost. Copyright © 2016 John Wiley & Sons, Ltd.