Friday, February 17. 2006
The World Bank, the Microfinance Information eXchange (MIX), and the Consultative Group to Assist the Poor (CGAP) recently published a report highlighting the performance and transparency of the South Asian microfinance industry. The report is comprehensive – pulling data from 125 South Asian institutions and close to 600 microfinance institutions (MFIs) worldwide.
The South Asian microfinance industry underwent major advances under the United Nations International Year of Microcredit 2005 initiative and is home to several of the fastest growing MFIs in the world. Overall, this sector has achieved massive credit outreach driven by record productivity and efficiency and a wide range of financial service offerings targeted to the poor. This sector is highly efficient both in terms of cost per borrower and cost per unit of loans outstanding. “Each dollar in loans costs just fourteen cents to maintain, compared with nearly twenty-six cents (p.13) in sub-Saharan Africa. Compared with their peers to the east, South Asian MFIs spend on average twenty-five dollars per borrower, less than half the average for the Philippines, Vietnam, Cambodia or Indonesia.”
Despite this positive news, many challenges in the sector lie ahead. The microfinance industry in India relies very heavily on debt financing (p.14) for its credit services. MFIs in Pakistan are also struggling, with most showing low revenues and negative returns.
Another hindrance to the successful growth of the industry is lack of transparency. “Today’s insufficient disclosure on revenues and expenses makes financial performance difficult. This lack of transparency hinders investment potential (p.26) and – worse - leads to higher sector risk through continued commercial lending to unprofitable institutions.”
To check out the report in its entirety, go to “Performance and Transparency: A Survey of Microfinance in South Asia.”
Additional Resources
1) “Performance and Transparency: A Survey of Microfinance in South Asia,” www.mixmarket.org, January, 2006
2) MicroCapital Blog: “Who Turned Out the Lights? Lack of Transparency Continues to Hinder Investing in Microfinance,” Thursday, January 12, 2006
3) MicroCapital Blog: “Microfinance Invests in India’s Top Minds,” January 24, 2006
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