Abstract:
The study attempts to assess the cost efficiency and performance of microfinance
institutions in Tanzania. The study was conducted on a sample of 16 microfinance
institutions in Tanzania.
Cost efficiency was analysed through Data Envelopment Analysis. The overall
results in assessment of cost efficiency, the study found microfinance institutions are
efficiency for more than 80% for five years and less than 80% for two years, implies
that the MFIs have improved in minimization of operating costs and better allocation
of resources. By categorizing by deposits status the results shows microfinance with
deposits taking are less efficient than microfinance without deposit taking.
On average, the institutions reviewed were sustainable with low relative productivity
and low profitability. The average sustainability and profitability of deposit taking
microfinance was high indicating that Microfinance institutions were better
performing. This indicates that tradeoff exist on cost efficiency and performance
measures when measured in a collective way.
The findings of the study also show that the age of the MFIs which indicate firm
experience have a positive impact on the profitability of Microfinance institutions
reviewed. On the other hand, size of the MFIs has effects on the cost efficiency and
performance of microfinance institution. From these findings, the study concludes
that both firm size and age have an impact on Microfinance performance
The study recommends that, due to the fast growth of the Microfinance sector in
Tanzania, with increases in small and medium Microfinance institutions, the go of
these institutions. Better policies should be created to facilitate growth and hence the
performance of Microfinance institutions in the country. The managers of
Microfinance institutions should monitor the institution's growth to ensure that both
size and age increase with MFIs‟ cost efficiency and performance.
