The paper has attempted to analyze the operating efficiency of select Micro Finance Institutions based in Uttar Pradesh. Micro Finance Institutions (MFIs) incur high transaction costs in serving the poor since managing small transactions is more expensive than servicing a larger borrower. Further, MFIs incur costs in reaching out to the poor in distant rural hinterlands. Conducting frequent meetings, door delivery and hiring a large team of field officers for monitoring, loan utilization checks

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... and repayment involves a huge cost. Unlike the commercial banks, MFIs are resource constrained entities. They rely on debt funding which adds up to their cost. At the same time, MFIs need to be financially sound to sustain its operations. In such a scenario, MFIs charge high interest rates to cover the costs of borrowing. The paper tries to investigate the relationship between yield and efficiency of MFIs. The paper is based on primary data of 23 MFIs operating in different parts of Uttar Pradesh.