Archive for: MIX

Globally Sub-Saharan Africa (SSA) remains the region with the largest portion of people excluded from formal financial services. Only 12 percent of adults have a bank account, and the situation is most dire in rural areas where the large majority of the 863 million people in Africa live.

CGAP and the Microfinance Information Exchange (MIX) released the 2011 regional snapshot of microfinance analysis and key trends in Sub Saharan Africa. For the first time, broad, comprehensive landscape data is available of close to 23,000 providers of deposit, credit or mobile banking services.  In comparison to other regions, SSA has a strong depositor base–almost a quarter of the global depositors recorded by MIX are in SSA, while the region only accounts for five percent of the borrowers.  With a large focus on deposit mobilization, MFIs in SSA require a small percentage of external debt. Financial expense ratios are around 2 percent, the lowest globally after the Middle East and North Africa. Large microfinance providers have the lion’s share of client outreach across SSA (between 80 and 90 percent of borrowers and depositors), but they are experiencing slower growth rates compared to smaller institutions.

The presentation produced by MIX and CGAP  contains much more information on microfinance in the 45 countries of SSA. But we wanted to dig behind the numbers and also look ahead to what 2012 might bring.  To do this, we had a conversation with a group of funders that are part of the Access to Finance working group of the Partnership for Making Finance Work for Africa to discuss key issues for the region. These are not resolutions, nor are they predictions. They are quite simply, four aspirations for the advancement of financial inclusion across the heterogeneous, exciting, and complex continent of Africa.  Over the course of 2012, we hope that…

1. Client needs will be far better met

Bringing financial inclusion about in SSA is not just about creating more access or strengthening the supply side. True financial inclusion can only be achieved if services offered are effectively used by clients. It is not just about the numbers. Clients require more appropriate and affordable services that truly meet their diverse needs. And as a greater number of products get to market, clients need enhanced financial capability to make sound decisions and understand the trade-offs among options. The proliferation of Finscope surveys including repeat surveys in countries like Nigeria, Rwanda and Tanzania is promising.  Diagnostic studies to better understand the risk management needs of clients and opportunities for extending insurance services are also good news.  And there are more efforts on the continent to innovate with new approaches for the improvement of financial capability.

2. Countries will forge a common vision of financial inclusion, covering the breadth of clients, services, and providers.

There are many scattered, and sometimes  narrow, perceptions of and initiatives about financial inclusion at the country level, with proponents for certain products – “credit is what will jump-start the livelihoods of poor people” and advocates of specific provider types – “savings groups are the way to reach very poor people effectively.”  What is really needed, however, are common visions and strategies for what financial inclusion is, and what it will take to achieve it. Governments and industry stakeholders developing financial inclusion strategies should recognize the full scope of what is needed as well as the continuum from informal finance to commercial bank finance to serve clients’ diverse needs. Linkages across the financial sector should be encouraged.

As the CGAP-MIX analysis shows, SSA has a diverse ecosystem of financial service providers. Credit unions reach the largest numbers of clients, around 20 million (about 30 percent of the total). But there are also many small credit unions with little outreach – – the average credit union in Tanzania has just 170 members, but there are more than 5,300 credit unions. Savings groups have almost 5 million members, primarily in East and West Africa, and in some of the markets, like Ethiopia, their scale is comparable to formal providers.  A few mobile network operators, like MTN and Vodafone, have rapidly expanded their supply of payment services on the continent. Africa is the fastest-growing mobile region in the world with a growth rate in number of connections of 19 per cent per year.  With close to 620 million connections already in place towards the end of 2011, the main question is how to leverage this powerful channel for the provision of much needed financial services, like savings, insurance and credit. Financial inclusion strategies need to understand this full ecosystem of providers. Read the rest of this page »

Our field made good progress last year. Building on the success and the experience to date, and learning from new challenges and insights, we started executing against a broader vision of financial inclusion: A vision that reaffirms the basic tenet that the right access to the right formal financial service helps households, microbusinesses, and the economy as a whole and a vision that recognizes that financial services are not an end in and of themselves but ultimately must improve household welfare. Access to formal financial services needs to give poor families a broader range of choices to build assets, smooth consumption, manage risks, and as a result make them better off than when they have to use the traditional, informal alternatives that are often limited, unreliable, and costly. Read the rest of this page »

This post kicks-off a new series in preparation for the XIV Inter-American Forum on Microenterprise (Foromic) in Costa Rica from 10-12 October.  CGAP and the MIF are joining forces to argue about the key challenges in microfinance and distill the game-changing solutions for greater financial inclusion and stronger micro and small enterprises in Latin America and the Caribbean.  These posts will also be featured on MIF’s Microfinance Blog in Spanish.

Recently, MIX has explored portfolio quality problems around the world, a common proxy to measure overindebtedness, and various relevant patterns emerge for the discussion of over-indebtedness in Latin America and around the world:

• Market saturation is an important early warning indicator of over-indebtedness:  Research indicates that the risk of portfolio quality problems increases when the total number of accounts per country is more than 10% of the total population.
  • The 10% threshold is an average, and further refinements are necessary to account for additional factors such as within-country geographical variation, demand for microcredit (including size of the formal economy and poverty levels), and supply of financial services by non-specialized microfinance providers (like state-owned banks) that may compete for the same type of clients than MFIs.
  • In order to mitigate the effects of market saturation, it is necessary to improve financial sector infrastructure, including regulation and credit bureaus. MFIs can expand into new under-served markets, and design new products beyond credit, including savings and insurance.
  • All parties involved in saturated markets should lower growth expectations before overheating the market. Read the rest of this page »

The Microfinance Information Exchange (MIX) has released a new brief, Microfinance Synergies and Trade-Offs: Social versus Financial Performance Outcomes in 2008. The brief uses reported  data from 208 MFIs to identify areas in which social performance and financial outcomes may be connected for MFIs. For example, will developing social performance-related incentives for staff raise the cost per borrower for an MFI? (Sadly, their data suggests it does.) Or, is training your staff on social performance connected to better portfolio quality? (In a bit of good news, their data suggest yes, it can.)

In a presentation of this study at CGAP’s offices last week, the author, Adrian González, was hesitant to draw too strong conclusions out of the data collected on social performance by the MIX, as this is the first year they have collected social performance data. However, the fact that they have compiled such an ambitious set of social performance data is a significant victory toward better social reporting. This builds upon years of work by the Social Performance Task Force and other industry leaders in social performance for MFIs, and it will be interesting to see how, in future rounds of data collection, the fine-tuning of the information collected and the growing sample size of MFIs participating will change or confirm some of these initial findings.

One particularly sticky challenge I see going forward is how to determine causality between social and financial performance. For example, consider one of the most basic social performance variables in their data set—targeting of the poor and/or very poor. The data in the MIX study finds that institutions that target the poor have higher operating expenses as a portion of their gross loan portfolio. However, is this because serving the poor is more expensive, or are these MFIs more likely to be nonprofits and  NGOs that have placed less emphasis than their for-profit peers on maximizing operating efficiency by cutting down on administrative costs, or extras like educational programs for their clients? Getting a better understanding of the causal relationship between social and financial performance could go a long way towards helping MFI managers find the right synergies that maximize both whenever possible. So be sure to keep your eyes on this interesting work coming out of the MIX, not just because it’s intriguing from a researcher’s perspective, but also for its potential to change the way we view the relationship between social performance and financial viability for an MFI. The more accurate and compelling our data on social performance and financial outcomes, the easier it will be to make a compelling business case to MFIs, which is essential to transform social performance into a priority area across the industry.

–Rafe Mazer

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

Once a year, CGAP’s membership and governance body, the Council of Governors, meets to set CGAP’s broad policies and strategic direction, provide inputs to our annual workplan and budget, and debrief one another on the latest trends in financial inclusion. That meeting is underway this week in Nairobi, Kenya, and began with remarks from acting CEO Alexia Latortue on the state of the industry and how CGAP has changed since its inception in 1995.

2010 marks CGAP’s 15th anniversary, providing an opportunity to reflect on the state of microfinance today and CGAP’s role within it. Is microfinance a mature industry, or one still experiencing growing pains? Are the ripples of the financial crisis still spreading, and what new forces are shaping the direction of microfinance in years to come?

Today, there are many more microfinance clients than there were in 1995.  Between 2004 – 2008, the average compounded growth rate of microfinance institutions (MFIs) reporting to the MIX was 43%.  There are now between 100 and 150 million clients. What breakthroughs will help us reach much more massive scale responsibly?  How can providers be ambitious about growth objectives while staying focused on the quality of client services?

Read the rest of this page »

Well not quite, but we are getting there. Two weeks ago, leading commercial microfinance investors gathered for two days at the Asia Microfinance Investment conference in Singapore.  Two trends emerged from the two-day discussions.  First, commercial cross-border investment in Asia is still low, but there are signs of growth. Second, commercial investors increasingly care about promoting the double bottom line in their investments.

Using CGAP’s recent market intelligence on cross-border funding for microfinance and MixMarket data, participants discussed the investment gap that we see throughout Asia.  Cross border investments from Microfinance Investment vehicles in East Asia represent only 6% of global MIV portfolio, whereas the region hosts 10% of the global microfinance portfolio volume, 15% of the world’s micro-borrowers, and 22% of the global population and 23% of the world’s poor population.  This investment gap in East Asia has multiple causes such as the relatively limited number of MFIs that investors consider “investable” can attract investors, relatively high supply of domestic local funding sources such as savings, but also government market intervention. For example in Vietnam, Laos, China, and Thailand state banks still play a dominant role in finance for low income people.  Cambodian microfinance, an exception in the region, has attracted international investors thanks to the emergence of solid institutions and government policies designed to attract foreign investment to the sector. 

Read the rest of this page »

With only 1 in 5 households having access to financial services, the microfinance sector in Sub-Saharan Africa is still facing challenges but it is also rapidly evolving on every front. Microfinance institutions are facing increased competition and the entrance of new players. Governments are increasingly recognizing the importance of access to formal financial services as a key component to economic development. Funders are strongly committed to support access to financial services. I recently worked with my colleague Jennifer Isern of CGAP and Audrey Linthorst of the MIX on a report that analyses the development of the African microfinance field. The report focuses on the key growth trends, the national and regional regulatory environments, funding flows and structure, and performance of microfinance institutions. Read the rest of this page »

Lately, I’ve noticed several versions of the statement, “Although much is made of MFIs becoming subsidy independent, few of them have reached this goal.”  I find it pretty hard to square such statements with the evidence.

Among roughly 1300 MFIs reporting to the MIX for 2006, about 565 showed a positive return on assets. Let’s assume that some of these aren’t really sustainable, either because their results are incorrectly reported or because adequate adjustments weren’t made for subsidies they received.  That still leaves hundreds of sustainable MFIs. Read the rest of this page »