MICROCAPITAL.ORG PAPER WRAP-UP: Microfinance and Small Deposit Mobilization: Fact or Fiction?, Adrian Gonzalez and Richard Meyer

Written by Adrian Gonzalez and Richard Meyer, published June 2009 in the MIX Market Data Brief No. 2, 20 pages, available at:
http://www.themix.org/sites/default/files/MIX%20Data%20Brief%20No%202%20%20June%202009.pdf

This study aims to determine whether or not “deposit-mobilizing microfinance institutions (MFIs) are actually serving small depositors”. This question is answered by determining the ratio of the “Average Deposits per Depositor to Average Loan Balances per Borrower”, with average deposits and average loans balances each expressed as a percentage of gross national income (GNI) per capita in each respective country. The authors assume that smaller average deposits compared to average loan size indicates that a low income clientele is being served. Additionally, taking average deposits and loans as a percentage of per capita income in each country allows for a comparison between countries. Data was taken mostly from 2007. 298 deposit-mobilizing MFIs were used. These MFIs were selected only from countries with at least two MFIs that mobilize deposits, and two that do not.

The main result is that deposit mobilization campaigns do well in most countries to attract small depositors. For example, the average ratio of average deposits to average loan size across all MFIs in the study that actively mobilize depositors is .61. This means that the average size of deposits in these MFIs is less than two-thirds of the average size of loans. The authors see this ratio as an indication that deposit mobilizing MFIs, in general, have been able to create deposit products that serve a relatively low-income demographic. Additionally, 87 percent of MFIs in the study had an average deposit size that was lower than the average loan size. In other words, most MFIs had relatively low deposits compared to loan size, which the authors take as an indication that they are attracting low-income depositors through their campaigns.

In fact, only five countries in the study, Armenia, Azerbaijan, Russia, Uzbekistan, and Guinea, had higher average deposits compared to average loan size for deposit-mobilizing MFIs. Four out of these five countries are part of the Eastern Europe and Central Asia (ECA) region. With this, four out of the eleven countries in the ECA had higher average deposits compared to average loan size. This makes the ECA, in the author’s estimations, the worst performing region at attracting small depositors.

On average, the ECA also compared poorly to the other regions. The region’s average ratio of deposits to loans was .99, meaning that, on average, deposits were about equal to loan size for deposit-mobilizing MFIs. Comparatively, Africa had an average ratio of .41, Asia had .44, and Latin America/Caribbean had .38. All of this indicates that these regions had very low deposits compared to loan size, which the authors argue speaks to their ability to attract small depositors.

By Christopher Maggio, Research Assistant

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