How can changes in the lives of microfinance clients best be measured?  How does that differ from tracking impact? Last month I participated in a panel that gathered three MFI practitioners, one social investor, and one researcher from Innovations for Poverty Action (IPA) to find answers to that question.

Anticipating some sparring between the “camps,” I sat between those proposing monitoring tools and non-experimental research as a way to track change, and those supporting impact studies with randomized controlled trials (RCTs) as the way to attribute impact, for example, from a loan or savings product.

Tracking or studying change and measuring impact are fundamentally different things, and there’s a growing schism in microfinance between these two camps. On the one hand, there is a movement composed of social investors, MFIs, management consultants, and researchers that support monitoring and change studies. For this group monitoring indicators, such as those offered by IRIS  or MIX, are sufficient: research sans randomization may give a “good enough” orientation of what microfinance really does for clients. This group also supports monitoring outputs, making diagnostics on how processes affect outputs, and non-invasive academic research that does not need control groups and helps managers to make decisions. They want rigor: but the approach is pragmatic, rather than purist. A list of the various monitoring tools can be found at the Social Impact practice of McKinsey.

The impact supporters, on the other hand, say that impact evaluation with RCTs is all that will actually measure and answer the impact question: there’s simply no other way.  And a significant amount of money and brainpower is going into it. There are currently over 300 RCTs completed or ongoing in the research portfolios of the main RCT researchers: the World Bank , J-Pal,  or IPA. “Tell me what you exactly want to know and we will measure it and give you answers,” the IPA researcher told the practitioners. 

At the heart of this discussion are different interpretations of what impact means and radically different drivers.

The one thing we all agree on is that marketing change or monitoring and evaluation as impact studies is misleading, and simply wrong. The very name “change studies”—coined by an MFI—may reflect a growing awareness and understanding of what monitoring can—and can’t—do, which is good news. But the gulf between the practitioner and the research worlds needs bridging if we’re really going to make progress on such an important discussion.

Meritxell Martinez

With the SKS IPO slated to hit the street by the end of July, we will have an opportunity to learn more about where the microfinance industry is headed.  There will be some details which the IPO transaction itself will shed light on, but the most important questions about the microfinance industry will take some time.  We should not rush to judgement.

The IPO will finally tell us where the price and valuation settled.  A price at the low end might dampen investor enthusiasm.  On the other hand, a valuation perceived to be a the high end might bring accusations of supernatural profiteering.  Expectations about the price and valuation may drive the initial reaction.  It will be very interesting to read carefully the reaction from the general public, opinion makers or policymakers to gauge broader perceptions of a changing microfinance industry within India.  Microfinance may finally move in the public’s view from a development sector to a fully commercial enterprise.  Another key issue is how smoothly the transaction is executed.  If it moves through seamlessly with strong subscription this should be a sign that future IPOs for microfinance are possible.

But the most important and contentious issues about the IPO will take more time for us all to weigh carefully.  It will be particularly important to see how the proceeds of several Mutual Benefit Trusts are used given the philanthropic purpose for which these MBTs were first created. This is something we may not know for several months or possibly even longer.  Another feature that may take time to learn more about is how new transparency and governance standards applied to public companies affects SKS’s performance.  And we will have to wait and see how the IPO affects the growth trajectory, expectations, and valuations of the broader microfinance industry. 

Will the health of the microfinance industry be advanced?  This is something we will have to look beyond the transaction itself into the months and years ahead. 

Keep your eyes on the CGAP blog in August for a forthcoming breakdown of the IPO transaction.

Gregory Chen

Dear Sanjay,

Thanks for your thoughtful critique and ideas on how CGAP can best support the healthy growth of microfinance. We welcome your analysis of where the industry has come during a really exciting period in its development and growth. And we agree that we all need to do much more work to ensure that the 2.7 billion people still financially excluded today gain access to safe, reliable, and well-priced services that can help improve their families’ lives.

As we celebrate 15 years of CGAP, we are also reflecting upon where the industry has come, and where CGAP can be most useful in helping to advance financial access for the world’s poor. Like you, we believe that advancing financial access isn’t just about expanding access from a sheer numbers perspective—though that’s critical—it’s also about the quality of that access. This requires ensuring the establishment of healthy business practices, strong governance and oversight, and most important, developing products and services that meet the real needs of poor people, an area where the industry still sorely lags. On that last point, we have all learned a lot from the book published earlier this year, Portfolios of the Poor.

Your analysis of an industry that has become an “overcharged bull” is true of some markets. Indeed, we have written about the perils of unchecked growth, warning of the need to address core internal vulnerabilities within microfinance, and making recommendations on how to strengthen the industry. We also took a strong—and with some, unpopular—position on governance around the Compartamos  IPO. IPOs and 70-100% growth are the vivid symbols of rampant growth in pockets of India. But as a global organization, we are sharply aware that such buoyant growth is far from uniform. In still too many regions and markets, the opposite scenario prevails where access to financial services remains limited to a tiny percentage of the population. Even the global averages [23% growth in borrowers] mask what is really a very uneven picture.

CGAP’s messages have evolved as the industry and wider climate develops. We recognize that an approach that served the industry and its clients well at a time when it was in its infancy may not always hold today. We appreciate your generous recognition of the important role that CGAP has served for the industry in helping to establish consensus around some core principles and standards. We also believe that our founders were quite visionary in recognizing a need in the industry and in creating a global platform in CGAP through which debate could be had, and consensus reached.

CGAP continues to play an important role as a platform for a wide range of stakeholders to engage around standards, and agree on norms of practice. But the context in which we are working today has changed radically. And we must adapt.

Where the emphasis of our work in the early days was on establishing core standards of financial transparency and reporting, significant progress has been made and others continue to take that forward, so our emphasis today has shifted toward other areas needing attention, such as social performance reporting, consumer protection, and responsible finance. Some current work in this area includes the social performance reporting awards, developing consensus guidelines for MIVs that cover ESG, substantial policy work on consumer protection, and CGAP’s key role in the SMART campaign. None of this is a reversal from the achievements made on financial performance, but the rounding-out of those achievements to ensure that the industry best serves its mission to help poor clients. And we continue to support the MIX as a platform where institutions can report both financial—and increasingly social—performance in one place.

There are many useful insights in your analysis, though your interpretation of CGAP positions is not always accurate, or up-to-date. Even if “zero-tolerance-for-delinquency” language may once have been useful as a counterweight for a widespread lack of collection discipline, you are clearly correct that 100 percent on-time repayment is neither practically achievable nor even desirable in principle, most basically because it would imply exclusion of all clients who present any credit risk. CGAP did talk about zero tolerance in our early years, and will even plead guilty to having failed to nuance the concept adequately. But we’ve been clear for many years now that zero tolerance for delinquency is not feasible or appropriate. (And of the many MFIs we’ve recognized with grants and awards, we can’t remember one that ever had zero delinquency.) Or to take another example, our view about loan renegotiation has not been that it should never happen, but rather that it should not be used to avoid sound collection discipline or to conceal repayment problems.

We appreciate your acknowledgment of our work with mobile network operators and other new technologies, including G2P (government-to-people) payments, to promote financial inclusion. And it is also obvious that people living in extreme poverty need more than financial services: a whole range of interventions from livelihoods support to business development, education, health services, and even addiction counseling or other services related to the social issues that can be bred by poverty, are necessary. CGAP is committed to advocating for the needs of those living in extreme poverty.  Our work with “microfinance plus”, including the CGAP-Ford Foundation graduation program,  which now has 9 pilots active in 7 countries, has reinforced some key lessons: 1) the importance of savings; 2) people living below the poverty line need more than financial services; and  3) doing it well is hard. Any organization can claim to do all this, but each of the interventions mentioned above is a highly specialized business. Few organizations have the set of skills, or can even acquire the set of skills needed to provide such a complex set of services. Our experience with the CGAP-Ford Foundation graduation program has taught us that, often, quite an elaborate series of institutional partnerships and alliances are needed to deliver the right mix of services to very poor people. There are impressive organizations building businesses to address the range of needs they identify—a group of us recently had the privilege of visiting Jamii Bora which takes this approach in their work with slum dwellers in Nairobi—but in many more cases, partnerships will be critical to success.

In recent years and in some quarters the term “commercialization” has been used to denote greed, excessive profit, and uncontrolled growth—with all the negative consequences that entails for poor clients. Even though we have seen negative effects and excesses in some countries and institutions, we continue to believe that on balance the commercialization of microfinance has yielded great benefits for poor people. Overall, it has led to more professional, safe, and predictable services. It has resulted in the broadening of services beyond credit, most particularly the offering of safe savings services, and it has meant that many, many more people have access. The entry of socially responsible investors—still a much more prevalent source of funding than purely commercial investors—has opened up new opportunities for microfinance, and thus for poor people.

Clearly, cases of abuse need to be tackled, and tackled swiftly. There are refinements and improvements to practices needed, as well as greater transparency on all fronts. But we should be wary of chalking up every negative occurrence to a label of “commercialization”, and focus on the real challenges facing the industry. We need to reach agreement and develop practices around reasonable pricing and profits, governance, and what constitutes “responsible finance”—particularly getting a handle on the over-indebtedness of poor clients. At the same time, in many parts of the world the biggest challenge is not the excesses. It remains, quite simply, the basic challenge we’ve always had: reaching those who are still unserved, and developing the right kinds of knowledge and business models to do it well.

One of the hardest questions we ask ourselves constantly at CGAP is where we can add most value. We believe that our strengths as an organization lie in spotting and documenting trends, taking risks, and innovating so that successes can be taken forward by our members, partners, and others. Our best role is not so much in implementing models whose success is already proven, but in experimenting with unproven concepts, convening and sharing knowledge, helping to define standards and good practices in new areas, and advocating. As the microfinance landscape becomes ever more complex we, like so many other organizations in this field, constantly need to re-evaluate the focus and scope of our work and the technical skills and expertise needed to help us to achieve our mission.

And we do not undertake this reflection alone.  We hope that over the coming years CGAP will continue to be a key player in facilitating a more ambitious and expansive microfinance industry, with many new players and many new ways of working. But one thing is for sure: our mission is not one that can be achieved by any one organization. We fully believe that any advances will be made in partnership. So as we think about CGAP’s future role, and focus on where we can most add value, we’re also thinking about where we can work with others to achieve our shared vision of universal access to high-quality services that can help improve lives—something that people everywhere deserve.

With best wishes,
Alexia.

Jonathan Morduch, a guest blogger for the Microfinance Blog, is sharing his thoughts about regulating microfinance.

That is indeed the question when regulators so often find themselves playing catch up – trying to figure out if and how something that’s already happening should be supervised.

When it comes to prudential regulation – or safeguarding deposits – the stakes are particularly high. In microfinance, most MFIs aren’t big enough to threaten the health of the financial systems they’re part of if they run into trouble. However, if prudential regulation of microfinance is inadequate – or when it fails – poor customers stand to lose their savings entirely. And the stakes really don’t get much higher than that.

As with other forms of regulation, the basic dilemma is that regulators of microfinance want to ensure the health of financial institutions without creating undue burdens on the institutions, or on themselves. Striking the balance is tricky when experience with regulating financial access and evidence to support hypothetical costs and benefits are so thin.

In his third Policy Framing Note for the Financial Access Initiative, David Porteous sheds some light on why these challenges are so, well, challenging, and describes early experiences with prudential regulation of microfinance in India, Nigeria, the Philippines and Nigeria.

According to the paper, there are two basic ways to integrate microfinance into regulatory frameworks. One is to amend existing regulations; the other is to write new laws that open special “windows” for microfinance. The window approach is appealing, since microfinance is a rather unique animal in the world of financial services. But, as CGAP points out in its 2003 “good practice” guidelines, for the sake of consistency and efficiency, financial regulation really works best when it focuses on activities or functions, not on types of institutions.

In the end, there’s no such thing as off-the-rack regulatory policy, and amending existing regulation to incorporate microfinance just isn’t always doable. Some activities, like mobile banking, are so distinct they simply demand their own sets of rules. What’s more, regulation should always be considered on a country-by-country basis. But paying close attention to early experiences with prudential regulation of microfinance will certainly help policymakers start to make smart choices.

The Ethiopia Graduation Pilot builds on the government of Ethiopia’s food for work program.

A few months ago my colleague Aude de Montesquiou wrote on the launch of the Ethiopia Graduation Pilot. We were both in Mekelle in the North of Ethiopia with the Relief Society of Tigray (REST) last week, where the pilot has just got underway. Tigray has a population of over 4.3 million people of which 80% reside in rural areas. The region is characterized by endemic food insecurity and an estimated 90% of the population earns less than two dollars a day.

The 500 participants in this graduation pilot have been selected in 10 communities that are particularly poor, ecologically diverse (both dry and dry-wet zones) and relatively accessible for REST staff. Participants in the program have been selected based on their food insecurity, their vulnerability to shocks, their household’s irregular income, landlessness and the fact that they own no large livestock such as oxen.

Building on the recommendations from the market analysis  conducted last year combined with REST’s experience, participants have been encouraged to choose among the following livelihood options: sheep and goats, cattle fattening, honey production, petty trade, and an “open” option. All have already been trained in these activities and the asset transfers have just started.

The government public works stipend (15kg of grain or 150 birr per household member) will provide five months’ of in-kind support and one month of cash support paid out over the seasonal lean period—this is when participants particularly need the extra “breathing space” provided by the support.  Savings are mandatory, and 80% of participants have already opened individual savings accounts at Debit Credit & Savings Institute. 

On the research side, Innovations for Poverty Action has already completed the baseline survey with the participants and 500 randomly-selected control households. BRAC Development Institute has started its first round of in-depth interviews to understand the process of change in participant’s lives. 

Keep looking out for updates here: www.cgap.org/graudation/ethiopia

Syed Hashemi

How far do microfinance funds expect their investments to go in changing lives? Are microfinance funds looking for specific changes in the lives of poor people or increased access to finance in a responsible way? And can we tell from the information they provide? These questions were central to an investor meeting CGAP co-organized with the Investor Group of the Social Performance Task Force in Bern this week. More than 40 investors gathered, including many microfinance investment vehicles  (MIVs),  banks, a pension fund, and development finance institutions. Together they represented more than half of assets under management in the microfinance sector.

The good news is that microfinance investors are increasingly committed to disclosure on their environmental, social, and governance (ESG) performance.  Seventy-one MIVs reporting to CGAP’s annual survey submitted ESG data in line with the CGAP MIV Disclosure Guidelines which now includes 24 ESG indicators—including client protection practices and client outreach numbers. More than 70% of the funds share ESG data with their investors. Also 85% endorsed the Client Protection Principles and many have taken actions to implement these principles in their investment processes. Ensuring that investees are treating clients fairly is considered the minimum standard for socially responsible investment.

But is the information disclosed sufficient to support many of the claims funds are making? In the debate, it was clear that microfinance funds don’t all share the same objectives: some focus on achieving financial inclusion in a responsible manner, while more socially-oriented investors focus on making a change in the welfare of clients or even alleviating poverty.  Since both aims are about improving lives, the rhetoric surrounding these two quite different driving approaches and the marketing—particularly in  fundraising prospectuses—often blur the lines. Investors are understandably confused.  MIVs need “truth in advertising” around both goals and results. Those focusing on financial inclusion should not market themselves as poverty reduction instruments—or at least need to make the link more clearly about what kinds of impacts can be reasonably claimed from their investments. Funds claiming positive change in people’s lives should be held to higher accountability standards and track microfinance client level data.

There are still challenges in collecting and validating meaningful data on the change microfinance brings about, but progress is being made as we heard this week at the meeting of the Social Performance Task Force. Investors, such as Oikocredit, are actively supporting their investees implementing measurement tools to allow better tracking.

The SPTF Investor working group and CGAP agreed to better identify the different objectives and performance metrics of the 110 Microfinance Investment Vehicles.

In early June, Finance Ministers and Central Bank Governors of the G20 called on international standard- setting bodies to consider how they can further contribute to encouraging financial inclusion, consistent with their respective mandates. One key standard-setter is well on its way to heeding the G20’s call.

Under the 2009-2010 Dutch Presidency of Paul Vlaanderen, the Financial Action Task Force (FATF) – the international standard-setting body committed to preventing money laundering and terrorist financing – made significant progress in putting financial inclusion on its agenda.

At the recent FATF plenary meeting in Amsterdam, in-coming FATF President Luis Corral of Mexico committed FATF to continue assisting financial inclusion initiatives by putting it among the key priorities of his Mexican Presidency. He stressed the complementary nature of financial inclusion and financial integrity: “financial inclusion should be of particular interest to FATF as financial inclusion’s main effect is to capture sectors of the informal economy” that are outside money laundering and terrorist financing controls.

Many regulators, concerned by the prospect of a negative money laundering and terrorist financing evaluation, have been very conservative in using the flexibility of FATF’s recommendations which, when appropriately used, could include those currently excluded from financial services. One such recommendation requires that financial service providers verify a customer’s identity “using reliable, independent source documents, data or information.”

Read in a rigid way, such requirement would exclude many poor and low-income customers as they simply do not have such documentation, and would be denied access to financial services as a result. However, FATF does permit “risk-based” approaches to implementing its standards. One benefit of such risk-based approaches is to bring unbanked people into the formal economy – thereby serving the dual goals of (i) fighting terrorist financing and money laundering and (ii) promoting financial inclusion.

This win-win scenario was further highlighted by the plenary’s keynote speaker - Netherlands Crown Princess Máxima, a long-time advocate of financial inclusion for the poor and the UNSG’s special advocate for inclusive finance for development. “Bringing people and businesses into the formal financial system helps communities thrive,” the Princess declared. “It helps regulators and supervisors monitor and trace the movement and sources of money. It helps law enforcement by diminishing the anonymity of informal transactions. In short, financial inclusion contributes to financial integrity. “The challenge now is to build on FATF’s commitment to financial inclusion, and to develop “best practices” and improved guidance to jurisdictions, regulators, and supervisors to translate FATF’s commitment into real progress on the ground. The World Bank and CGAP will continue to coordinate efforts towards this end.

Jean Pesme is the manager of the World Bank’s Financial Integrity Unit and Michael Tarazi is a senior regulatory specialist at CGAP.

Amid the flurry of news coming out of Toronto, you’d be forgiven for missing this important development:

The G20 Leadership Summit in Toronto this past weekend highlighted the importance of the work being done by the G20’s Financial Inclusion Experts Group (FIEG). The group released nine “Principles for Innovative Financial Inclusion” formed through the efforts of the Access through Innovation Sub-Group (ATISG). “We have developed a set of principles for innovative financial inclusion, which will form the basis of a concrete and pragmatic action plan for improving access to financial services amongst the poor. This action plan will be released at the Seoul Summit,” the Toronto declaration said.

Read the nine principles here and over on the Microfinance Gateway you’ll find the Principles and report from the Access through Innovation Sub-Group of the G20 Financial Inclusion Experts Group.

Syria recently introduced new legislation allowing for the establishment of “social financial banking institutions” such as finance companies or banks to offer a range of financial services, including deposits. So it was a great place for CGAP to host this year’s Microfinance Policy Forum for the Arab world in collaboration with Sanabel Network (the microfinance network of the Arab countries). The Forum is a unique opportunity for officials from central banks and government ministries from across the Arab world to exchange experiences and knowledge with peers. Dr. Adib Mayaleh, governor of the Central Bank of Syria, made opening remarks in which he presented the recent legislation.

Arab microfinance is diverse. Although the region as a whole has grown at about the same rate as global microfinance since 2006, individual country experiences have varied greatly. Morocco, Egypt, and Jordan have exhibited strong growth while other countries have seen very little growth and some countries (such as Algeria) have almost no microfinance sector at all.

Though many countries in the region have relatively developed financial sectors, this development has not translated into increased financial inclusion. “In MENA, there are fewer loan accounts, accounts (except Sub-Saharan Africa) and branches (except East Asia and Sub-Saharan Africa) per population than any other region of the world and only an estimated 15% of microfinance demand is being met, ” said Mohammed Khaled, MENA regional representative at CGAP.

Clearly, there is much to be done. Microfinance in MENA is limited in scale, products, and capacity and very few MFIs offer financial services beyond basic credit. Investors are discouraged by a predominantly NGO-based model and by the lack of regulatory and supervisory clarity. Government-owned institutions such as state banks, development and employment funds, savings banks, and post offices continue to be primary providers of both credit and non-credit services for low-income households in the region.

The 2009 Policy Forum in Beirut attracted 23 regulators from 11 Arab countries and was the first such gathering of Arab regulators on financial inclusion. This year, the Forum attracted 25 regulators representing all countries of the MENA region as well as observers from AFI, USAID, IFC, KfW, GTZ, World Bank, and UNDP.

Mrs. Shamshad Akhtar, World Bank Vice President for the MENA region delivered the keynote address, a call to action for government policymakers. While a number of steps are already being taken by some regulators in the region, she said, there is much more government can do to promote financial inclusion including improving financial infrastructure, and providing low cost access through mobile phones and ATMs:

“We need to set our sights higher than a well-regulated and sound financial sector that reaches only a minority of people and firms. We should aim for well-regulated and sound financial sectors that reach a majority.”

The event featured discussions of the wide array of regulatory challenges confronting regulators of the region including:

(i) The advantages and risks of the deposit-taking model: In Egypt deposit-taking services are not allowed, whereas Syria allows MFIs to offer savings services, as Nisreen Karkotly, Head of Research Department at the Central Bank of Syria, pointed out because “deposit-taking institutions are recognized to be more resilient to crisis than non-deposit taking ones as customer savings represent a stable and reliable source of funding.”

(ii) The transformation of NGO-MFIs into commercial institutions: Fouad Abdelmoumni, former Director of Al Amana and member of CGAP Executive Committee, urged MFIs to consider the advantages of transforming from non-profit NGOs into commercial entities: “By transforming, Arab MFIs could access commercial funding and a legal charter to provide a broad range of services helping them achieve their outreach objective on a sustainable basis.”

(iii) Risk management in times of crisis: My colleague Xavier Reille, Lead Microfinance Specialist at CGAP emphasized the shift in microfinance risks that operated between 2008 and 2009: from staffing and capital availability in 2008, to credit risks and macro-economic trends in 2009. He also presented a fictional case study to help microfinance regulators react in uncertain environments, as the microfinance sector is facing uncontrolled growth in several MENA countries.

(iv) The potential for mobile banking and other forms of branchless banking to increase financial inclusion: in an interactive session, Michael Tarazi presented the various existing models of branchless banking with examples from Brazil, Kenya, and other countries.

Some themes that emerged from the discussions were:

• The huge potential of branchless banking to provide low cost access to people,
• The need for a nuanced approach to regulation,
• Better financial infrastructure and support mechanisms,
• A collaborative approach to bringing in the various financial inclusion stakeholders within governments,
• More collaboration with regulators within and outside the region possibly through
• Engagement with the Association for Financial Access (AFI).

(Plus afterthoughts on mission drift and the quality of Bangladeshi microcredit products.)

I recommend reading David Roodman’s blog from last Wednesday about framing a “bottom line” verdict on microcredit.  I was particularly interested in his concluding observations:

…[W]hile high-quality impact studies are valuable, they can never give us the whole story, for each is a static snapshot. (Often, it should be said, of impacts at low doses, because randomized trials are often performed as MFIs roll out services to new customers, which in microcredit means making those small first loans.) Much of the story of the impact of credit lies in the dynamics of the market, how it evolves over time, as we have just seen here in the United States. You don’t understand those through traditional impact studies.

It also means, by the way, that impact studies ought to report doses and impacts with equal prominence.

Some would argue that USAID’s AIMS impact studies did not successfully screen out selection bias.  But my recollection is that the impact that they found (whether truly caused by the microcredit or not) tended to be associated with a series of loans, not just one, let alone the initial MFI loan that is often far below what the client wants and can handle.  That doesn’t mean that we should ignore the results of randomized trials that cover 15 or 18 months of entering clients’ experience.  But it does suggest that longer-term results, if obtainable, should be a lot more significant.

While we’re on the subject of small initial loans…  People tend to see loan size as a rough proxy of client poverty, which appears to be more or less true as long as you say the word “rough” very emphatically.  But the first few loans that an MFI makes to a client typically reflect, not the client’s ability to use and repay the amount, but rather the MFI’s risk management policy (i.e., we’ll give the client more serious money only after she’s established a good track record in repaying little—i.e., low risk—loans.)  This is one of several reasons why it is a serious mistake to view increase of average loan size as ipso facto evidence of mission drift in an MFI.

When Compartamos started out, no client could get an initial loan bigger than $50.  After some years of great loan collection performance, management decided that they could loosen the reins a bit, and give clients the choice of a range of initial loan sizes, from $50 up to several hundred.  Once the new policy was implemented, almost no one chose a $50 loan, and most new clients took the maximum loan size.  This produced a big increase in average loan size, which had nothing to do with the poverty level of the incoming clients.

Microloans per 1000 households (or per 1000 poor households) are a lot higher in Bangladesh than anywhere else.  Why is the country such an outlier, with some other countries appearing to approach market saturation at much lower levels?  And why haven’t we seen more signs of price competition and pressure on profit levels in Bangladesh, given that large percentages of potential clients have access to multiple providers.  My speculation is that both of these things may reflect MFI loan size policies that are not well matched with client needs and repayment capacity.  Anecdotally, one hears that there are very high levels of multiple indebtedness in Bangladesh.  But I’ve seen a couple of studies reporting that in Bangladesh, unlike most other countries, multiple indebtedness has not been strongly correlated with repayment problems.  Maybe the MFIs are handing out loans that are too small, forcing clients into the hassle of going to multiple MFIs to borrow an amount that fits their needs and repayment capacities.  If I want loans from all three MFIs in town, the fact that one of them charges a little more interest than the others is unlikely to deter me.  In an environment like that, one wouldn’t expect to see much price competition.

If any readers have any data bearing on this speculation, I’d be very interested to hear about it.