Productivity change of microfinance institutions in Kenya: A bootstrap Malmquist approach

• We study the productivity of Microfinance Institutions using DEA based Malmquist Index.
• We use a bootstrap procedure to provide confidence intervals.
• Productivity progress has mainly been attributable to technological improvements.

This paper uses a DEA (Data Envelopment Analysis) based Malmquist approach to investigate the changes in productivity of 20 Kenyan microfinance institutions (MFIs) over the period 2009–2012. A bootstrap procedure is employed to determine whether the changes in Malmquist index and its components are statistically significant. Results show that MFIs have experienced about 7% annual productivity progress on average, which is mainly attributable to technological advances. A second-stage bootstrapped regression analysis is employed to examine the impact of several environmental variables on productivity change measures. Results show that matured MFIs tend to have a lower productivity compared to their younger counterparts. Results also reveal that higher return-on-assets associates with the productivity gain and technological improvements.