The above theoretical framework outlines the relationship between the Independent
variables which are Outreach, Efficiency, Loan Repayment and Profitability of the
Current no. of
four microfinance Development Bank and the Dependent Variable which is
Competitive Scenario of Nepalese Micro finance development banks.
2.8.1 Independent Variables
Outreach is a widely used measure of performance, which is used to gauge growth in
financial inclusion. For a measure of wider outreach, i.e. growth in number of clients,
number of active borrowers is used as a proxy. In addition, loan size (average loan
balance per borrower) and share of woman borrowers are included in the analysis.
The first indicator measures the breadth of outreach, i.e. numbers of clients MFIs are
providing financial services to while the last two measures are proxy for depth in
outreach, i.e. how poor the clients are (Olivares-Polanco, 2005; Ahlin et al., 2010;
Cull et al., 2009b; Hermes et al., 2009).
The second group of performance measure is efficiency. The most commonly used
and best indicator of overall efficiency of a lending institution is operating
expenses ratio (OER), which is the ratio of operating expenses to average gross
loan portfolio. In addition, we select a measure of efficiency that captures average
cost of maintaining an active borrower (cost per borrower-CPB).
Loan repayment is another dimension of performance that is taken into account. It
includes portfolio at risk greater than 30 days (PAR30), 90 days (PAR90) and write-
offs ratio (WOR). The first two show the portion of portfolio that is overdue and at
risk of not being repaid. The older the delinquency the less likely the loan will be
repaid. The last measure indicates loans that can no longer be repaid or defaults.
These are measures that help us assess loan repayment performance of clients and
portfolio quality of MFIs.
The last group of performance measures is labelled profitability, which includes
return on assets (ROA), profit margin and financial sustainability of MFIs measured
by operational self-sufficiency (OSS).
2.8.2 Dependent Variable
As emphasized by various literatures, the competitive scenario is influenced by the given
dimensions in independent variables. This has provided direction towards this research
work. Centering the literature reviews, Competitive Scenario among the Microfinance
development Banks is taken as a dependent variable and assessed on the basis of the
influence of the independent variables on it.