Efficiency Analysis of Islamic Microfinance Institutions: Case of East Java

Abstract

This study examines the efficiency of Islamic Micro Finance Institutions (IMFIs) in East Java using a two-stage study. The first stage is to test the efficiency of the IMFIs using the Data Envelopment Analysis (DEA) approach and the second stage is to look for factors that affect efficiency using the panel regression. The DEA is employed for 19 IMFIs with three years of financial observance. The study further tests the impact of some macroeconomic and internal factors on the efficiency of IFMIs. Findings show that KSPPS Sri Sejahtera succeeded to maintain the level of efficiency for three executive years. Besides, macroeconomic factors play no contribution in effecting the efficiency of IMFIs while some internal factors such as the size of IMFIs, Labor Cost and Financing to Deposit Ratio affect the efficiency significantly with different degrees of exposure.