Performance of Microfinance Institutions in Papua New Guinea Dr. Muneer Babu M Senior Lecturer in Economics IBSUniversity

Microfinance Microfinance is a provision of small financial services (saving, loan, insurance and remittance) through group lending mechanism even without collateral. This promise to solve some problems (high risk of default, few methods of enforcement of credit contract and cumbersome procedures) of traditional banking mechanism.

Microfinance Access to financial services are important to ensure smoothening of income generation and consumption of people. Performance of MFIs is crucial in the development process of the country. As the performance of MFIs can increase access to the various financial services to a large sections of the population, who are under banked currently.

Motivation There is a need of expanding the provision of financial services to the poor. Therefore, the optimal utilization of resources of microfinance institutions are important to achieve the goal. The firm level efficiency analysis give an insight into the level of resource utilization.

Microfinance Institutions (MFIs) in PNG Major PNG microfinance industry consist of Microbank and Savings and loan society (SLS) . As on 01 October 2017, 10 PNG-MFIs report data to Mix Market,. The data shows that PNG microfinance industry has 213.23 million Kina worth of gross loan portfolio, with 36.86 thousand active borrowers. Similarly, with 387.92 million Kina worth of deposits.

Specific Objectives To examine the level of efficiency of two types of Microfinance Institutions in PNG during 2015 -16 and 2016-17. To estimate technical efficiency ratios and scale efficiency ratios of MFIs in PNG. To make a comparison of less efficient MFIs and highly efficient MFIs.

Input Profile of MFIs during 2016-17 Sl. No. Name of MFIs No. of Staff Amount of Deposits (In Million Kina) 1 Kadaporaman 27 14.16 2 Nationwide Microbank 166 69.03 3 People's Microbank 118 61.43 4 PNG Microfinance 162 59.71 5 Women's Microbank 23 3.54 6 Alenkano SLS 4.21 7 East New Britain SLS 50 30.17 8 Manus SLS 9 5.32 NCSL 67 127.17 10 Niu Ailan SLS 21 13.18 Total 670 387.92

Output Profile of MFIs during 2016-17 Sl. No. Name of MFIS No. of Active Borrowers   (In 000’) Gross Loan Portfolio (In Million Kina) 1 Kadaporaman 1.17 2.93 2 Nationwide Microbank 4.2 51.95 3 People's Microbank 2.32 32.28 4 PNG Microfinance 3.02 41.63 5 Women's Microbank 0.32 0.8 6 Alenkano SLS 1.33 6.45 7 East New Britain SLS 15.97 8 Manus SLS 0.78 2.12 9 NCSL 18.18 51.97 10 Niu Ailan SLS 3.54 7.13 Total 36.86 213.23

Review of Literature: DEA Bassem (2008) studied 35 MFIs in Mediterranean Countries. Finding: The size of the MFIs has negative effect on efficiency. Haq et.al (2010) studied 39 MFIs across Africa, Asia, and the Latin America. Finding: NGO MFIs are most efficient. Nadiya and R Ramanan (2011) examined 88 Indian MFIs for 2009. Finding: 14 MFIs are efficient. Muneer Babu and Kulshreshtha (2013) studied 79 Indian MFIs. Finding:14 MFIs have full technical efficiency.

Literature Review Continue… Muneer Babu and Kulshreshtha (2014) studied 34 Indian MFIs during 2006-07 to 2010-11 Found that Total Factor Productivity has been marginally increased with a decline in technological growth in the microfinance industry. Muneer Babu (2016) has studied 34 Indian MFIs during 2006-07 to 2010-11 Found that technological progress is negatively related ted to rate of inflation and positively related to GDP growth rate.

Data and Methodology Mix Market: Data Set of 10 MFIs in PNG. Data Envelopment Analysis: Charnes, Cooper & Rhodes (CRR) Model (1978) Bankers, Charners & Cooper (BCC) Model (1984) Measurement of Scale Efficiency. Software used: DEAP

MFIs, Exhibit CRS during 2015 and/or 2016

MFIs, Exhibit IRS during 2015 and/or 2016

MFIs, Exhibit DRS during 2015 and 2016

Other Findings and Conclusion Under CRS assumption, during 2015 and 2016, the average technical efficiency of microfinance industry was 86.71% and 91.36%. Under VRS assumption, during 2015 and 2016, the average technical efficiency of microfinance industry was 89.34% and 94.34%. MFIs, which are in IRS still have capacity to increase scale of operation. MFIs are in DRS could focus on exploring economies of scope by transferring excess inputs. Explore scope of decentralization, downsizing and other changes in the organizations.

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