A new index commissioned by multilateral financial institutions Inter-American Development Bank (IADB or IDB) and Andean Development Corporation (Corporación Andina de Fomento or CAF) debuted in El Salvador at the 10^th Inter-American Microenterprise Forum (October 3-5). The IDB and CAF commissioned the index, called “Microscopio” or “Microscope,” from the Economist Intelligence Unit (EIU), a specialized service of The Economist that provides country, industry and management analyses. Microscope uses 13 criteria relating to investment climate, regulatory framework and degree of institutional development for microfinance to rate the favorability of conditions in a country for microfinance. The index is designed to allow for comparison between countries and analysis of the strengths and weaknesses of the business climate for microfinance in each country.

In its first run, the index evaluated 15 Latin American countries: Argentina, Brazil, Bolivia, Chile, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Paraguay, Peru, Uruguay and Venezuela. Interestingly, three relatively small, poor Andean nations came out ahead of the wealthier, larger competition. According to Microscope, the countries with the best conditions for microfinance are Bolivia, Peru and Ecuador, respectively. El Salvador, Dominican Republic, Nicaragua, and Paraguay followed in the ranking. Venezuela and Argentina have the worst conditions for microfinance of the Latin American countries surveyed. For a listing of scores by country, see the bottom of the IDB press release.

Though the findings may seem counterintuitive, they were “in general terms what many [analysts] expected,” according to Alejandro Soriano, CAF’s deputy director for microfinance and small- and medium-sized enterprises. Robert Wood, senior analyst for Latin America and the Caribbean for the EIU, pointed out that ideal conditions for effective microfinance differ from those conditions typically considered favorable for traditional investments.

The IDB and CAF predict that Microscope will play a large role in evaluating microfinance conditions in Latin America in the years to come. Analyses are expected to become even more in-depth, surveying more sources such as regulators and bank examiners, and include more countries in the region. Results will be released annually.

The IDB, established in 1959 to promote development in Latin American countries, is the oldest and largest regional bank in the world with USD 9.53 billion in total assets as of 2006. The CAF is the main financing source for its 17 member countries in Latin America, the Caribbean, and Europe, generating USD 11.74 billion between 2002 and 2006. In 2006, its loan portfolio totaled USD 8.9 million.

Additional Resources:

Inter-American Development Bank Press Release: “Three Andean nations lead Latin America in business climate for microfinance, according to new index”

Subscription only: Business News Americas: “New index: Bolivia, Peru, Ecuador best for microfinance.” October 3, 2007.

Inter-American Development Bank (IADB or IDB)

IADB: Financial Summary 2002-2006

Corporación Andina de Fomento (CAF)

CAF: What is CAF?

CAF: Portfolio

Economist Intelligence Unit

The Economist

MicroCapital.org article, August 8, 2007: “MICROFINANCE EVENT: IADB’s X-American Forum on Microenterprise: The Road Ahead“