By the Economist Intelligence Unit, funded by The Multilateral Investment Fund, Corporación Andina de Fomento and the International Finance Corporation, October 2011, 72 pages, available at: http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36453519.
This paper examines the microfinance business environments in 55 countries, comparing them across three categories: supporting institutional framework, political stability, and regulatory framework and practices. It is the fifth annual paper in the series, covering the 12-month period through June 2011. The research comprises data collected in 21 countries of Latin America and the Caribbean, 11 countries of Sub-Saharan Africa, seven of Eastern Europe and Central Asia, seven of East Asia, five of South Asia and four of the Middle East and North Africa.
The authors argue that while microfinance has become more mature and sustainable, the global financial downturn lead to a downgrade in the quality of some loan portfolios resulting in the need for improvement, especially within risk management. The report benchmarks the regulatory framework and operating environment in each evaluated country. The factors included in the scoring are: regulation and supervision of microcredit portfolios, legal recognition for microfinance institutions (MFIs), regulatory and supervisory capacity for microcredit and other microfinance services, deposit policies, accounting transparency, client protection, credit bureaus and political stability.
The two countries of East and South Asia that are rated as having the most favorable conditions for microfinance operations are Pakistan and Philippines. Both receive strong scores for regulatory frameworks and are in the top ten positions in the overall ranking. Cambodia, ranked 13th, also has an advantageous environment for MFIs. There is an expectation of positive change in Thailand where the Ministry of Finance has appointed new body to deal with microfinance matters and the central bank eased regulations. In China, although the number of MFIs has been growing, the sector is still in the early stages of development. India’s ranking dropped due to new regulatory limits on interest rates and lending margins. Countries such as Sri Lanka and Vietnam are still in the process of formulating regulatory mechanisms for microfinance.
Countries of Eastern Europe and Central Asia generally occupy middle positions in the ranking. The position of the Kyrgyz Republic dropped nine spots to settle at 21 as the regime change in 2010 annulled plans for modernization of relevant law. Armenia and Bosnia focused their efforts on consumer protection, and both countries score highly for financial reporting standards.
Peru and Bolivia perform best in the ranking not only in Latin America and the Caribbean region but also globally. The authors of the ranking find that in Peru the sector benefits from a well-defined legal framework and effective supervisory capacity. On the other hand, microfinance in Bolivia continues to prosper regardless of civil unrest. As the operations environment for microfinance has improved in Mexico and Panama, both countries jumped in the ranking to finish in a tie at tenth place. Brazil climbed up twelve spots as a result of strong financial inclusion and innovations in agent banking. Trinidad and Tobago, Venezuela, Haiti and Argentina are among those occupying the bottom ten spots worldwide.
The growth of microfinance has decreased in a number of Arab countries due to political unrest. Current affairs had a particularly bad influence on the operating environment in Yemen. Despite clear regulation and rapid growth in the sector in Yemen over the last several years its rank this year sank 17 positions – still the best in the Middle East and North Africa. While Egypt’s legislation does not allow the provision of microcredit by non-bank commercial companies, Morocco has been boosting its investment climate for microfinance. On the other hand, Lebanon only lightly regulates with regards to microfinance.
Kenya scores the highest in Sub-Saharan Africa and is fourth in the global ranking. Neighboring Uganda finishes ninth globally and, alongside Pakistan and Philippines, is the leader of the category for regulatory framework and practices. Rwanda ranks 15th based on government support of microfinance activities, especially in rural areas. In Nigeria, the central bank revised its microfinance policy in April 2011 but faces difficulties with enforcement. The central banks also have issues with supervising MFIs in Democratic Republic of Congo, Ghana and Senegal. In Madagascar, the market size has increased and there is a comprehensive legal framework and a promotion unit, but serious transparency issues remain.
By Emilia Akonom, Research Associate
Sources and Additional Resources:
Global Microscope on the Microfinance Business Environment 2011 http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36453519
MicroCapital Universe Profile: Multilateral Investment Fund (MIF) https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Multilateral+Investment+Fund+%28MIF%29
MicroCapital Universe Profile: Corporación Andina de Fomento (CAF) https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Corporaci%C3%B3n+Andina+de+Fomento+%28CAF%29
MicroCapital Universe Profile: International Finance Corporation (IFC)https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29
MicroCapital.org story, October 23, 2011, MICROCAPITAL BRIEF: Peru Tops 2011 Global Microscope Index on Microfinance Business Environment https://www.microcapital.org/microcapital-brief-peru-tops-2011-global-microscope-index-on-microfinance-business-environment/
MicroCapital.org story, May 10, 2011, MICROCAPITAL BRIEF: Banko Sentral ng Pilipinas (BSP) Convenes Microfinance Stakeholders Summit Celebrating “Microscope” Ranking from the Economist https://www.microcapital.org/microcapital-brief-bangko-sentral-ng-pilipinas-bsp-convenes-microfinance-stakeholders-summit-celebrating-microscope-ranking-from-the-economist/
MicroCapital.org story, October 15, 2010, MICROCAPITAL BRIEF: The Economist Intelligence Unit “Microscope” Study Discusses Challenges to The Rapidly Growing Microfinace Industry https://www.microcapital.org/microcapital-brief-the-economist-intelligence-unit-microscope-study-discusses-challenges-to-the-rapidly-growing-microfinance-industry/
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/tiki-index.php
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