Performance Comparison : Microfinance Vs Commercial Banks

Abstract

In Pakistan the Microfinance is being understand as a strategy that will help the economy in the reduction of poverty and will try to wider the progression in the economy of the country by the insertion of small credit and finance to raise the number of SME’s other employment generating activities. The rural and poor people of Pakistan does not have access to commercial banks, so the microfinance sector by overcoming that flaw and became accessible to rural areas and providing small financing on easy conditions. As it is important tool of alleviating poverty its financial sustainability and its performance was compared with the commercial banks in Pakistan. For this purpose a sample of 9 banks from each of these two sector was selected. From microfinance sector it was selected randomly while from commercial sector it was selected on the basis of performance rank, three from higher performance, three average performance and three from low performance. The performance ranking of these banks were taken from the State Bank of Pakistan report. The data for these banks were gathered from their respective annual reports for the time period of 2012-2017. These banks were compared on the basis of profitability (ROA), Efficiency (Operating Expense to Total Assets), Solvency (Equity to Total Assets), and Financial Structure (Debt to Equity Ratio). Analysis of variance (ANOVA) was applied to compare the difference between their mean. While the robustness of the test was also checked. The results of the study indicated that Microfinance banks are facing the issue of financial sustainability, and has less asset base than the Commercial banks.