Performance assessment and definition of improvement paths for microfinance institutions: an application to a network of village banks in Cameroon

Abstract

Abstract The objective of this paper is an assessment of the financial and social performance of a network of village banks in Cameroon and the provision of data‐driven guidance to managers helping them in their decision‐making process. An analysis framework in three stages is developed. First, a data envelopment analysis (DEA) is implemented for measuring efficiency, identifying best practices, and setting goals to less efficient microfinance institutions. Then, a DEA operating frontiers (DEA‐OF) model is designed to identify improvement paths setting short‐term goals toward their long‐term DEA objective and providing effective and time‐dependent guidance to managers in their efficiency improvement process. Finally, DEA and DEA‐OF results are translated into financial and nonfinancial indicators daily used by managers through three different and interrelated scorecards. Results of this third stage are used for identifying village banks ready for the new phase of development of the network aiming to fund community projects.