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Purpose The paper aims to evaluate the technical efficiency of African Microfinance Institutions (MFIs) and examine if there is performance difference by ownership type.Design/methodology/approach The paper applies stochastic frontier analysis (SFA) assuming that the translog production functions to estimate the technical efficiency of 134 Microfinance Institutions operating in 36 African countries. The parametric SFA is preferred over the non-parametric, as it captures the random and inefficiency effects. Though the suitable approach is SFA, for the purpose of consistency and robustness of the results, the alternative data envelopment analysis (DEA) approach is also run and the results are compared with those derived from SFA.Findings In our analysis we have found that African MFIs are technically inefficient. The average technical efficiency for the sample institutions is 0.489, which is quite low and suggests that on average, African MFIs are achieving only 48.9 per cent of the maximum achievable output. Our results also revealed the presence of significant technical inefficiencies with considerable differences in inefficiency among the MFIs. Further, we found statistically significant difference in the efficiency performance among the different ownership types of MFIs. More importantly, the NGO and non-bank financial institutions are relatively more efficient, while the cooperatives/credit unions are the least efficient.Research limitations/implications The study contributes to the continuing debate on the effect of ownership type on performance of institutions. Moreover, it indicates the importance of using certain approaches and complementing them with other alternatives for a better insight.Practical implications The study found that the least efficient type of MFIs are the cooperatives/credit unions. This might be related to the nature of these institutions where the members are owners and borrowers. This might affect efficiency negatively, although it may somehow address the agency problem.Originality/value This paper provides an evidence on efficiency performance of African MFIs, taking a large data set and applying SFA. DEA was also used to complement the SFA results. It provides useful empirical evidence and perspective on this important issue for policy makers and analysts. [ABSTRACT FROM AUTHOR]

Purpose - This paper aims to illustrate theoretically and empirically the decision and result of strategic alliance between baitul maal wa tamwil (BMT) and Islamic banks as a relationship based on trust, mutual-trustworthiness and commitment. This paper also identifies the basic criteria for the resilience of a strategic alliance, the challenges and the barriers in a strategic relationship along with managerial and operational implications. Design/methodology/approach - In this study, we have chosen to use the confirmatory approach through a structured questionnaire by means of field survey to 131 BMT spread throughout Central Java and Yogyakarta. From the total sample, 89 BMT fulfilled the sampling criteria, that is: has operated for a minimum of two years and does not experience any financial difficulties during those two years; has done a financing contract with an Islamic bank; channels some of its funds to micro, small and medium enterprises; and is in the form of a cooperative, and not a micro financial institute. Data treatment uses the method of list wise deletion. Data analysis uses equation model with the software LISREL version 8.80. To validate the result of data analysis, we have also run a focus group discussion with Directorate of Syariah Banking, Bank of Indonesia, and in-depth interviews with BMT parent cluster (Inkopsyah). Findings - This research shows that commitment contributes positively in achieving the financial goals of an alliance. Coordination and initial agreement has a positive and significant influence in forming commitment from BMT and trust from Islamic banks. Other than coordination and initial agreement, the trust given by Islamic banks also came from the social capital owned by BMT. Originality/value - The trust and commitment will assist the building of strategic alliance between Islamic banks and BMT. Apart from financial purposes, the alliance between the two will also encourage natural knowledge-sharing. [ABSTRACT FROM AUTHOR]

Purpose – The purpose of this research paper is to define the factors that a bank would require to have in order to succeed in the traditionally unbanked segment of the East African region. The paper specifically looks at approaches used by banks to make banking affordable and accessible to most Kenyans. Most banks are turning their focus to the traditionally unbanked with all of them competing in an ever decreasing market. Design/methodology/approach – The research was carried out by using both primary and secondary data. Primary data were collected using a survey questionnaire administered to customers of banks in Kenya whilst secondary data were collected from the banking survey of Kenya reports. Respondents were sampled using convenient sampling method. Findings – The paper found empathy and satisfaction to be the major critical success factors (CSFs) for these banks. This implies that customers who visit these banks are more concerned with the attention they receive when they seek financial services. It was also found that there was significant difference between banks that cater for the traditionally unbanked customers (TUC) and those that do not. Research limitations/implications – Management of banks should put into cognizance aspects of empathy and satisfaction which are the identified CSFs. This will enable them to improve and sustain their competitiveness in the banking sector. Practical implications – The paper puts forward market practices which can inform policies and guide other financial institutions that would want to provide services to the TUC. Originality/value – The paper introduces the concept of service quality for TUC who were left out in the banking sector in Kenya. [ABSTRACT FROM AUTHOR]

Purpose – Indian Bank, a major commercial bank in South India, has launched Rural Credit Franchisee (RCF) model for lending money to small borrowers in villages. The study aims to study the business model, the profile of ultimate borrowers and their credit requirements and to study the economics of the model. Design/methodology/approach – Data used for the study are mostly primary in nature collected from the RCFs and the rural borrowers. In addition, bank officials were interviewed and also data on loan accounts of RCFs were collected from the sample bank branches and the RCFs. Findings – The RCF scheme is a novel micro finance scheme and it has showcased that the informal institutions can be linked with the formal credit institutions. The scheme has benefited all the stakeholders including the bank, the RCFs and the rural poor. Research limitations/implications – The study has covered majority of the RCFs of the bank in terms of number and volume of business under the scheme and hence the results indicate the performance of the entire portfolio of the bank under the scheme. Practical implications – The study finds that the scheme has benefited all the stakeholders. It has particularly helped in creating competition amongst the rural moneylenders and thereby bringing down the cost of credit in rural hinterlands. Findings are strongly in favour of expanding/replicating the model by the other commercial banks and in all parts of the country, rather across the entire world. Originality/value – The RCF model is one of its kind and the policy makers and regulators may encourage the scheme in order to attain inclusive economic growth. This is a first of its kind study investigating the operation of such a model. [ABSTRACT FROM AUTHOR]