Sustainability of Indian Microfinance Institutions: Analysis of Financial and Social Super Efficiency

Andhra Pradesh’s microfinance institution (MFI) crisis calls for establishing a balance between financial and social performance to ensure sustainability. The present study analyses the financial efficiency and social efficiency of Indian MFIs during 2015–2020, which is a crucial period, as during this period, Indian MFIs came across some significant changes such as permission to act as business correspondents, Micro Units Development and Refinance Agency (MUDRA) scheme, demonetization and outbreak of COVID-19. Since the relative efficiency scores based upon specific set of inputs and outputs proclaim many MFIs to be fully efficient, super efficiency scores have been computed to discriminate their performance. The results reveal the setbacks to all MFIs during 2016–2017 and 2019–2020 as an immediate impact of demonetization and COVID-19, respectively. Super-efficiency estimates divulge that the fall in financial efficiency was greater than in social efficiency in both the years. Mann-Whitney test reveals significant differences between financial and social efficiency in terms of overall efficiency, however, no significant difference could be observed for managerial efficiency. The results are expected to be fruitful for MFIs striving to maintain a trade-off between the twin objectives as results endorse a positive rank correlation between financial and social efficiency.