Cost-efficiency and Outreach of Microfinance Institutions: Trade-offs and the Role of Ownership

The focus on achieving financial efficiency by microfinance institutions in recent yearsraises a natural concern on their social outcome, outreach to the poor. Using a stochastic frontierapproach on sample microfinance providers in Ethiopia, this paper analysed the effect of anincreasingly important efficiency requirement on the traditional social mission of microfinance. Italso addressed whether the way ownership is organised and practiced affects the cost of microfinancedelivery. The result indicates a trade-off between the outreach to the poor and cost-efficiency,suggesting the difficulty in trying to achieve the two goals simultaneously. Financial cooperativesare better in their cost containment compared with specialised microfinance institutions owned byshareholders.