Excessive focus on risk? Non‐performing loans and efficiency of microfinance institutions

Microfinance is a banking market in which operating costs are high, while non-performing loans (NPLs) rates low. While the existing literature tends to explain that high arise from provision of small loans, we argue excessive efforts control loan losses can also be contributing factor. Therefore, this article investigates relationship between NPLs and cost efficiency microfinance institutions (MFIs). Using unique global sample rated MFIs applying stochastic frontier analysis together with Granger-causality test generalized method moments (GMM), find, contrast positive linear evidence commercial studies, nonlinear (U-shape) NPLs. This implies need balance their asset quality.