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Appraising Efficiency of Conventional and Islamic Microfinance Institutions in India using Data Envelopment Analysis

  • M.K. Ummer Farooque M.K. Ummer Farooque Principal Markaz Garden Group of Institutions, Calicut, Kerala India ,  
  • Prashant Ranjan* Prashant Ranjan Corresponding author Scholar Department of Management Studies, Jamia Millia Islamia, Delhi, India. India Prashant Ranjan ORCID Id
Received: March 06, 2025
Accepted: March 27, 2025
Published: June 18, 2025
Volume: 1 (1) | Page: 13-24

Abstract

Purpose- The purpose of the present work is to find out the efficiency of Islamic microfinance institution compared to the conventional microfinance institution in Kerala, India.

Design/methodology/approach- The study used primary data which are collected using the convenience sampling method. Thus, in total, the study used 60 institutions (30 institutions from each of the stream). The qdata collected for the four years: 2019-20 to 2022-23. The study used both Input and output method under constant returns to scale and variable returns to scale. The analysis of the data is done by using Data Envelopment Analysis and Independent t-test.

Findings- It is evident from the result; the average efficiency of Islamic microfinance institutions is higher than their conventional counterparts and that there is no significant difference between the efficiency scores of both institutions.

Research limitations/implications- The limitation of the study is that though India has more than 150 million Muslim population, yet Islamic finance is not popular in all the states. Therefore, the data from another state could not be collected.

Practical implications- It is one of the excellent pieces of evidence for the policymakers and regulatory agencies to understand the significance of Islamic finance.

Social implications- Most of the customers of Islamic microfinance institutions are poor. Hence, these are serving poor people without charging any interest, yet their business model is viable.

Originality/value- The work is carried out to find out at the ground level the efficiency of Islamic microfinance institutions. It is the first study of its kind regarding India and will add value to the existing literature.

Keywords: islamic microfinance, data envelopment analysis, technical efficiency, pure technical efficiency, scale efficiency

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