FINANCIAL FEAT OF MICROFINANCE INDUSTRY: STOCHASTIC FRONTIER APPLICATION

Abstract

Financial support to underserve for having a better life standard through the spillover effect of microfinancing, this concept gained momentum as a movement after 1980s. Microfinance (MF) industry ultimate promise is not merely the poverty reduction but also to become the efficient and financially sustainable, so that subsequently it can maintain its market share permanently. Accomplishment of this dual mission urge has originated a debate regarding the potential and possibilities of this industry and become a hot issue. For the resolution of this double challenge, we evaluated the MF industry in Pakistan which is considered as one of the best regulated MF industries in World. We applied stochastic frontier Analysis for unbalanced panel and ranked technical efficient and sustainable Microfinance institutions in Pakistan. Non Government Organization providing micro credits seemed to be more efficient and sustainable as compared to Microfinance Banks and Rural support programmes. The average efficiency of sector was 74%, pretty high in utilizing the input resources yet the sustainability focus was stumpy as only 24 out of 148 institutions established to be sustainable.