There are two recently released reports on the top global microfinance organizations:
Both of these are based on data collected by Microfinance Information eXchange, Inc. (MIX) which is leading market research publisher of microfinance data. Forbes rankings are also accompanied with some additional articles on microfinance.
First and foremost, I want to commend MIX for publishing this superb report. This is an invaluable tool for getting a snapshot of the microfinance industry at the end of 2007.
Here are a few highlights from the more thorough 2007 MIX Global 100 report:
- Top 100 expanded grew client base an overage of 75% in 2006
- Top 100 institutions which could accept savings (a minority) on average now have 2 savers for every borrower (yes, the working poor do want to save!)
- India is leading the client growth with many MFI’s growing by more than 100%. Additionally, India MFIs are leading the way in cost efficiency plus interest rates with low profit margins.
A couple of quick observations on the MFIs/reporting that could be improved/refined:
- Transparency. Many organizations have a transparency ranking of 100%. Frankly from my personal experience in working with many of these organizations, there is a significant need to improve transparency so the bar must be too low for the “perfection” grade. For instance, quality and independence of board of directors is an important factor.
- Staff Efficiency. Banco Popular do Brasil claims 7,200 borrowers per staff member — the #1 ranking. The #2 ranking is 1,400 borrowers/staff member. Frankly, I don’t believe anything above 1,000 borrowers/staff member is an accurate report. Either the numbers are just wrong on they are outsourcing some roles which should be reflected in this ratio. Overall, I’d like to see the staff efficiency metric move to something like “margin per staff member” as many of the more innovative MFIs are launching a broader set of financial products/services which can reduce borrower/staff efficiencies, but ultimately create improved staff productivity as increased value for the client.
- Portfolio at Risk. The top 57 (of 100) portfolio quality MFIs have a portfolio at risk (PAR) of 0% and the average for the top 100 is 0.0% (rounding to only one decimal). While I’m a big fan of portfolio quality, I think that this means the these organizations are not taking much risk and therefore they are not reaching their social impact potential. Somehow I think we want to discourage MFIs from having too low of a PAR (as well as too high of a PAR) to encourage innovation and risk taking.
- Profitability. This is a good way to expose the MFI who have very high profits (remember from whom they are making them). I would also like to see publishing of average yield on loan portfolio as this would expose the effective interest rate that the MFI is charging borrowers and could again help outsiders’ insight. In general, I’d like to see more transparency on MFI interest rates with accompanying explainers on their cost of capital and operating costs to explain their profitability targets.
- Savings. I think we’re going to start to see a lot of pressure on central banks to allow more institutions in this sector to have options for collecting and then mobilizing (re-lending) savings for the working poor. This will also have a significant positive impact on the MFI cost of capital and therefore the opportunity to lower borrower interest rates further.
If you have other comments and/or observations, please respond in comments.
Defeat Poverty 
Hi Dave..Congrats for your blog and a very happy newyear… you know some how i really like the whole idea of a greater role of central bank in the micro finance institutions, but at the same time i am not able to arrive at a concrete conclusion for a reason that the same central banks have greater deal of influence over the traditional banking channels(distribution networks)… at least in india, if the central banks wants to increase money supply then the banks would do so or vice-versa… now how far would you like the interference of central banks in these micro-finance instutions..
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Yogesh, good question. The reality is that the Reserve Bank of India is already quite in involved in regulating Indian MFIs. In general, this is a good thing as this brings legitimacy to MFIs and protects consumers from irresponsible and fraudulent operators. Additionally, the RBI has provided a lot of political air cover from meddling politicians who would like to have more personal control over to whom MFIs lend in order to manage political patronage. We’ve seen a number of examples where the RBI has told politicians “hands off” on MFIs defending MFI practices and legitimacy in delivering financial services for the working poor.I believe the single most important change that the RBI can make is to authorize MFIs to accept and then mobilize (lend out) savings. There is a strong and positive precedent for this already in Bangladesh and some Latin American countries. This would provide MFIs will a significant new source of capital…reducing their cost of capital, reducing their dependence on big banks (and venture capital) and diversifying their capital portfolio for better risk management. I am hopeful that we’ll see MFI savings enabled within the next year or so.
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