Measuring technical efficiency in Australian credit unions

Abstract

Credit unions are small, co-operative, not-for-profit institutions; facts which usually distinguish them from other financial intermediaries. Whilst respecting the unique organisational and institutional features of credit unions, the present study also accepts the need for rigorous efficiency assessment. Using a sample of 233 Australian credit unions the study uses nonparametric techniques to measure efficiency, followed by parametric techniques to attribute variation in efficiency. The results indicate that a large number of credit unions are best-practice efficient, and any efficiencies found appear to flow from X-inefficiencies, rather than from the selection of an inappropriate scale of operations. All other things beings equal, credit unions formed on the basis of a community bond, with a large asset base, and an orientation towards commercial loans, will be relatively more efficient.