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Sources of Data

State of the Microfinance “Industry”: Outreach, Poverty, and Profitability Adrian Gonzalez (MIX/CGAP) Richard Rosenberg (CGAP) Access to Finance: Building Inclusive Financial Systems Conference World Bank, May 30 th 2006. Sources of Data. 1. Microbanking Bulletin (MBB)

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Sources of Data

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  1. State of the Microfinance “Industry”:Outreach, Poverty, and ProfitabilityAdrian Gonzalez (MIX/CGAP) Richard Rosenberg (CGAP)Access to Finance: Building Inclusive Financial Systems ConferenceWorld Bank, May 30th 2006

  2. Sources of Data 1. Microbanking Bulletin (MBB) • adjusted, confidential • 346 MFIs, 19 mill. borrowers in 2004 2. MIX Market (MM) • unadjusted, public (www.mixmarket.org) • 671 MFIs, 22 mill. borrowers in 2004

  3. Sources (cont’d) 3. Microcredit Summit (MCS) • Mostly confidential • Only # borrowers, # “poorest”, and OSS all self-reported • 2153 MFIs, 90 mill. borrowers in 2004 Total without double counting: ~2600 MFIs, 94.5 mill. borrowers

  4. Database coverage • Combined database includes most “usual suspects” – so-called MFIs that use microcredit models developed in the last 30 yrs • But database doesn’t include many other “double-bottom-line” lenders who serve some poor clients --gov’t ag / development banks --savings & loan cooperatives --rural banks • Little data on savings services

  5. % of Total Borrowers by Region in 2004 Total: 94 Million Borrowers 80 67 60 Percentage of Borrowers by Region 40 21 20 6 5 1 1 0 S Asia EAP SS Africa LAC EECA MENA Source: Combined MBB, MCS & MM Borrowers concentrated in Asia EAP: East Asia & Pacific, SS Africa: Sub-Saharan Africa, LAC: Latin America & Caribbean, EECA: Eastern Europe & Central Asia, MENA; Middle East & North Africa

  6. NGOs serve only a quarter of borrowers Self-Help Groups Government Licensed NGOs

  7. 18% 18% 17% 15% 14% 12% 12% 11% 9% 8% 8% 6% 3% 0% 1999 2000 2001 2002 2003 2004 Average No. of borrowers grows 12% / yr1999-2004 Source: Combined MIX & MCS data

  8. 0 EECA 1 MENA 1 SS Africa 1 LAC 1 EAP 2 S Asia 0 .5 1 1.5 2 2.5 % total population with loans in 2003-2004 Penetration rates by region:% of total population with loans in 2003-2004 Source: Combined MIX & MCS data

  9. Selected Countries 0 Russia 0 Egypt 2 Morocco 4 B & H 5 Bolivia 6 Nicaragua 7 El Salvador 18 Bangladesh 0 5 10 15 20 % total population with loans in 2003-2004 Penetration rates by country Source: Combined MIX & MCS data

  10. Largest MFI 32 Largest 2 MFIs 53 Largest 3 MFIs 65 '' 4 MFIs 74 '' 5 MFIs 81 6 86 7 89 8 92 9 94 10 95 0 20 40 60 80 100 Median Market Share (percentages) A Few MFIs Serve the Majority of Borrowersin a country 2003-2004 Source: Combined MIX & MCS data

  11. Worldwide concentration: MFIs & Borrowers 2003-2004 1,425 smaller MFIs 145 larger MFIs % % % % Source: Combined MIX & MCS data

  12. How Profitable is Microfinance? (private) (state banks) Source: Combined MIX & MCS data

  13. Profitability of NGO Microfinance Improving Source: Combined MIX & MCS data

  14. MFIs reporting to MBB are More Profitable than Regular Commercial Banks Sources: -MBBs 9-12, and public ratings from Rating Fund for MFIs -BANKSCOPE for Commercial Banks in the MFIs’ countries

  15. Annual Growth Rate in # Borrowers (weighted average) All MFIs and Regions 20 16 Weighted Average Growth Rate 10 2 0 Profitable Not Profitable Weighted by number of borrowers Profitable MFIs grow faster Source: Combined MIX & MCS data

  16. Half of Profitable MFIs Broke Evenwithin 3 Years of Start-up > 6 yrs 32% 0-3 yrs 49% 4-6 yrs 19% Fewer than 1/3 took more than 6 years Source: MIX Market & MBBs 10-12

  17. Some correlation between absolute loan size and depth of outreach 100 90 % loans 50-60 ∆=10 11% (of median) % poor 52-59 ∆:7 9% (of median) 80 70 60 % of poor borrowers 50 40 30 20 25% percentile 30% percentile 10 0 0 10 20 30 40 50 60 70 80 90 100 % loans below $300 Observed % Trend Pseudo R2 = 11.8% Source: Pool Logit with all MM MFIs, all regions

  18. Do Smaller Loans Lower Profits?Not much, apparently. ROA vs. Loan size/GNI Per Capita E.g., Raising loans from 40% (median) to 50% of per capita income Raises ROA only from –1.62% to –1.55 % And the correlation is very weak ROA = -1.9 + 0.007 * Loan Size, R2 = 0.5% 50 ROA 0 -50 0 100 200 300 400 500 Loan Size as % of GNI percapita ROA Trend Source: MBBs 10-12 & MIX MARKET

  19. OSS = 81.5 - 0.15 * Poorest, R2 = 1.2% 200 OSS 150 100 50 0 0 20 40 60 80 100 Proportion of Poorest Clients Self-Reported OSS Trend Does higher % of “poorest” borrowers hurt profits?Not much, apparently. OSS vs. Proportion of Poorest Borrowers by MFI OSS E.g., Raising % of poorest borrowers from 80% (median) to 90% Lowers cost recovery from 69.5% to 68% And the correlation is very weak Source: MCS 2001-2004

  20. Regression results: efficiency Operating expense ratio: (admin cost / portfolio) • Scale (# borrowers) lowers costs early, but not beyond 5,000-10,000 borrowers. • Bigger loan size lowers operating expense ratio but not much. • For-profits tend to be more efficient than not-for-profits

  21. Regression results: profitability • Not-for-profits tend to be more profitable than for-profits (?!) • Interest rates & spreads drive profitability more than costs or productivity do. • Scale (# borrowers or asset size) doesn’t help profitability much. • Learning effect (age) doesn’t help profitability much.

  22. Main themes (1) • Governments continue to be major, though unprofitable, microloan providers. • Microfinance is profitable and stable enough to move into the mainstream financial system. • NGOs/non-profits serve only ¼ of the clients, but probably have a viable long-term role…..

  23. Main Themes (2) • Don’t expect scale to make an MFI profitable if it hasn’t gotten there in the first few years. • Serving poor customers need not hurt financial viability.

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