MICROFINANCE PAPER WRAP-UP: Global Microscope on the Microfinance
Business Environment 2011
» Posted by Emilia Akonom in Category:
Regulation,Technology,Transparency,Trends/Challenges at 2:22 pm
By the Economist Intelligence Unit, funded by The Multilateral
Investment Fund, Corporación Andina de Fomento and the International
Finance Corporation, October 2011, 72 pages, available at:
http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36453519.
This paper examines the microfinance business environments in 55
countries, comparing them across three categories: supporting
institutional framework, political stability, and regulatory framework
and practices. It is the fifth annual paper in the series, covering the
12-month period through June 2011. The research comprises data collected
in 21 countries of Latin America and the Caribbean, 11 countries of
Sub-Saharan Africa, seven of Eastern Europe and Central Asia, seven of
East Asia, five of South Asia and four of the Middle East and North Africa.
The authors argue that while microfinance has become more mature and
sustainable, the global financial downturn lead to a downgrade in the
quality of some loan portfolios resulting in the need for improvement,
especially within risk management. The report benchmarks the regulatory
framework and operating environment in each evaluated country. The
factors included in the scoring are: regulation and supervision of
microcredit portfolios, legal recognition for microfinance institutions
(MFIs), regulatory and supervisory capacity for microcredit and other
microfinance services, deposit policies, accounting transparency, client
protection, credit bureaus and political stability.
The two countries of East and South Asia that are rated as having the
most favorable conditions for microfinance operations are Pakistan and
Philippines. Both receive strong scores for regulatory frameworks and
are in the top ten positions in the overall ranking. Cambodia, ranked
13th, also has an advantageous environment for MFIs. There is an
expectation of positive change in Thailand where the Ministry of Finance
has appointed new body to deal with microfinance matters and the central
bank eased regulations. In China, although the number of MFIs has been
growing, the sector is still in the early stages of development. India's
ranking dropped due to new regulatory limits on interest rates and
lending margins. Countries such as Sri Lanka and Vietnam are still in
the process of formulating regulatory mechanisms for microfinace.
Countries of Eastern Europe and Central Asia generally occupy middle
positions in the ranking. The position of the Kyrgyz Republic dropped
nine spots to settle at 21 as the regime change in 2010 annulled plans
for modernization of relevant law. Armenia and Bosnia focused their
efforts on consumer protection, and both countries score highly for
financial reporting standards.
Peru and Bolivia perform best in the ranking not only in Latin America
and the Caribbean region but also globally. The authors of the ranking
find that in Peru the sector benefits from a well-defined legal
framework and effective supervisory capacity. On the other hand,
microfinance in Bolivia continues to prosper regardless of civil unrest.
As the operations environment for microfinance has improved in Mexico
and Panama, both countries jumped in the ranking to finish in a tie at
tenth place. Brazil climbed up twelve spots as a result of strong
financial inclusion and innovations in agent banking. Trinidad and
Tobago, Venezuela, Haiti and Argentina are among those occupying the
bottom ten spots worldwide.
The growth of microfinance has decreased in a number of Arab countries
due to political unrest. Current affairs had a particularly bad
influence on the operating environment in Yemen. Despite clear
regulation and rapid growth in the sector in Yemen over the last several
years its rank this year sank 17 positions – still the best in the
Middle East and North Africa. While Egypt's legislation does not allow
the provision of microcredit by non-bank commercial companies, Morocco
has been boosting its investment climate for microfinance. On the other
hand, Lebanon only lightly regulates with regards to microfinance.
Kenya scores the highest in Sub-Saharan Africa and is fourth in the
global ranking. Neighboring Uganda finishes ninth globally and,
alongside Pakistan and Philippines, is the leader of the category for
regulatory framework and practices. Rwanda ranks 15th based on
government support of microfinance activities, especially in rural
areas. In Nigeria, the central bank revised its microfinance policy in
April 2011 but faces difficulties with enforcement. The central banks
also have issues with supervising MFIs in Democratic Republic of Congo,
Ghana and Senegal. In Madagascar, the market size has increased and
there is a comprehensive legal framework and a promotion unit, but
serious transparency issues remain.
By Emilia Akonom, Research Associate
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