PAPER WRAP-UP: Benchmarking Asian Microfinance 2006

Written by Scott Gaul and Hindi Tazi of the Microfinance Information Exchange (MIX), based on 2006 benchmark data collected by MIX from 194 Asian microfinance institutions, this publication was released in March 2006 as a 20-page document available here.

The Asian microfinance sector served over 35 million active borrowers with USD 6.97 billion in loans in 2006. While it represents only one third of global borrowers, Asian microfinance serves two thirds of total microloan clients. Asian MFIs also achieved scale in savings with over 47 million voluntary depositors, three-fourths of global microfinance savings clients.

The top ten percent of the sampled microfinance institutions accounted for 80 percent of total borrowers in the region. Bangladesh had the largest concentration of large scale MFIs with a median outreach of 173 thousand borrowers. India followed with an average institution size of 83 thousand borrowers.

Between 2005 and 2006, sampled institutions expanded their combined total outreach by 23 percent, with 5.6 million new borrowers. However, the Asian MFI sector growth is skewed by a few high-growth, large scale institutions. India has the highest concentration of giant MFIs (institutions with total loan portfolios exceeding USD 15 million) with five of the largest and fastest growing institutions in the sample (table, page 3). These giant institutions saw an average growth rate of almost 100 percent in 2006.

Rural banks had the lowest growth rates of nine and ten percent due to limited outreach, but made up the majority of deposit-taking MFIs.

There remains a huge demand for financial services in the region. In Bangladesh, MFIs reached 35 percent of the country’s poor, while Sri Lanka and Vietnam were able to reach 25 percent of their demand. Cambodia and Indonesia covered 10 percent of the poor, with India trailing behind covering only three percent of their potential demand.

Asian MFIs rely heavily on commercial loans to finance their loan portfolios. In 2006, the average sample institution financed 75 percent of their loan portfolio by borrowing from commercial banks. Only one percent of the loan portfolio was leveraged using client savings, due to legal deposit limitations across the region.

The demand for deposit services was strong, however, and in markets where savings mobilization was not legally restricted, deposits were an important source of funds. In Indonesia, deposits made up 88 percent of MFI funds in 2006.

Microfinance institutions in Afghanistan, Pakistan, Vietnam and China struggled in 2006. For Afghanistan and Pakistan, high costs proved to be a challenge, while Vietnam and China have competition from government lending programs as their main obstacle.

Economies of scale had a huge influence on the operational efficiency of Asia’s MFI sector in 2006. Once institutions reached a total loan portfolio of USD 2 million, they spent just 16 cents out of every dollar in loans, less than two thirds the operational cost of smaller institutions. Giant institutions with over USD 15 million in loans spent 13 cents of every dollar in loans. Rural banks were the most efficient institutions on average, though their profitability remained low.

The Asian Microfinance sector remains a largely untapped market. With increased competition for local funds, institutions in the region are increasingly turning to foreign investors.

By Melissa Duscha

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