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Journal of Competitiveness

The Nexus of Competition Freedom and the Efficiency of Microfinance Institutions

Hafezali Iqbal Hussain, Sebastian Kot, Fakarudin Kamarudin, Wong Che Mun

competition freedom, microfinance institutions, regulatory efficiency, market openness, efficiency

The main purpose of this paper is to examine the effects of regulatory efficiency and market openness, two dimensions of competition freedom, on the efficiency of microfinance institutions (MFIs) in both its social and financial aspects. In addition, this study also examines the specific determinants of MFIs and macroeconomic conditions, two other potential variables that may influence MFIs efficiency. Within this study, two stages of analysis were conducted. In the first stage, the data envelopment analysis (DEA) approach was applied to measure the MFIs’ efficiency level, while in the second phase, a panel multiple regression analysis was employed to examine the effect of competition freedom and other determinants on MFIs efficiency. The results suggest that during the study period the main reason for MFIs inefficiency is both social and financial managerial inefficiency. The management of the MFIs failed to utilize their resources fully, leading to waste of resources. Nevertheless, the MFIs had been operating on a relatively optimal scale. In addition, the level of financial efficiency in MFIs was found to be significantly higher than social efficiency. In examining the impact of competition freedom, the freedom of business and monetary factors was found to be significantly negative for MFIs’ social efficiency only. Furthermore, this research stresses that investment freedom and financial freedom are statistically positive for financial efficiency, but negative for the social efficiency of MFIs. This study should prove useful for various institutions and have several implications for MFIs, policymakers, investors and researchers to improve the efficiency level of MFIs.

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Hussain, H., I., Kot, S., Kamarudin, F., & Mun, W., C. (2020). The Nexus of Competition Freedom and the Efficiency of Microfinance Institutions. Journal of Competitiveness, 12(2), 67–89. https://doi.org/10.7441/joc.2020.02.05

Journal of Competitiveness


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ISSN 1804-171X (Print); eISSN 1804-1728 (On-line)

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