The Nexus of Competition Freedom and the Efficiency of Microfinance Institutions
Hafezali Iqbal Hussain, Sebastian Kot, Fakarudin Kamarudin, Wong Che Mun
Keywords:
competition freedom, microfinance institutions, regulatory efficiency, market openness, efficiency
Abstract:
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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 10.7441/joc.2020.02.05
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
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