Current state of development and prospects for microfinance institutions

The database compiled by IFPRI (see policy brief on microfinance institutions [MFIs] in Africa, Asia, and Latin America) counts almost 1,500 microfinance institutions (688 in Indonesia and 790 in other countries) supported by international organizations in 85 developing countries. They reach 54 million members: 44 million of them save, and 23 million of them borrow. The total volume of outstanding credit stands at $18 billion and the total savings volume stands at$13 billion, or 72 percent of the volume of the outstanding loans. MFIs operated out of at least 46,000 branches and employed around 175,000 persons. Analyzing this world of mushrooming MFIs can provide fresh insights on potential service outreach and the overall role of MFIs in developing countries.Microenterprises Finance. ,Credit. Finance Developing countries. ,

The role of the state in promoting microfinance institutions

In a context of liberalized financial systems, microfinance allows millions of households, usually excluded from classical financial services, to begin or reinforce their own activities and become microentrepreneurs. Yet, in spite of the success of numerous microfinance institutions (MFI), many difficulties remain which must be urgently resolved in view of their ambitious objectives. First, a large number of the rural households still lack access to financial services. Second, most of the existing MFI are not yet financially sustainable. Finally, while funds from governments and donors are rapidly increasing, financial institutions still need solid foundations to avoid management failures. These issues raise questions of the role of the state to promote MFI including (1) which state-owned institutions may be necessary? (2) which level and type of subsidization of the financial institutions can be accepted? (3) what can be the choice for the state between alternative investments in financial institutions or complementary services? (4) what are the necessary conditions for creating a favorable environment? This paper presents the evolution of views on the role of the state in the financial system including theoretical and empirical points of view from the interventionist period of the 1960s and 1970s to the current period of liberalization. Based on country case studies illustrating the divergent role of the state in the development of the rural financial system, the paper reviews the respective role of the state, the NGO and the private commercial banks in increasing their outreach and in adopting microfinance innovations. It also analyzes different issues regarding regulation of MFI.FCND ,Small business Finance. ,Financial institutions. ,Government. ,

The role of the state in promoting microfinance institutions

In a context of liberalized financial systems, microfinance allows millions of households, usually excluded from classical financial services, to begin or reinforce their own activities and become microentrepreneurs. Yet, in spite of the success of numerous microfinance institutions (MFI), many difficulties remain which must be urgently resolved in view of their ambitious objectives. First, a large number of the rural households still lack access to financial services. Second, most of the existing MFI are not yet financially sustainable. Finally, while funds from governments and donors are rapidly increasing, financial institutions still need solid foundations to avoid management failures. These issues raise questions of the role of the state to promote MFI including (1) which state-owned institutions may be necessary? (2) which level and type of subsidization of the financial institutions can be accepted? (3) what can be the choice for the state between alternative investments in financial institutions or complementary services? (4) what are the necessary conditions for creating a favorable environment? This paper presents the evolution of views on the role of the state in the financial system including theoretical and empirical points of view from the interventionist period of the 1960s and 1970s to the current period of liberalization. Based on country case studies illustrating the divergent role of the state in the development of the rural financial system, the paper reviews the respective role of the state, the NGO and the private commercial banks in increasing their outreach and in adopting microfinance innovations. It also analyzes different issues regarding regulation of MFI.FCND ,Small business Finance. ,Financial institutions. ,Government. ,

Distribution, growth, and performance of microfinance institutions in Africa, Asia, and Latin America

How many microfinance institutions (MFIs) exist in the developing world? What are their current performances? In 1999, an International Food Policy Research Institute (IFPRI) team on microfinance conducted a survey on MFIs in Asia, Africa, and Latin America in order to offer a new in-depth analysis on the distribution and performances of MFIs at the international level. A systematic sampling has been adopted through the contacting of international NGOs and networks supporting various MFIs. The information has been complemented by a review of publications and technical manuals on microfinance. The database of MFIs from 85 developing countries shows 1,500 institutions (790 institutions worldwide plus 688 in Indonesia) supported by international organizations. They reach 54 million members, 44 million savers (voluntary and compulsory savings), and 23 million borrowers. The total volume of outstanding credit is $18 billion. The total savings volume is$12 billion, or 72 percent of the volume of the outstanding loans. MFIs have developed at least 46,000 branches and employ around 175,000 staff. The IFPRI database underlines the presence of a multitude of MFIs that, except in unstable countries, are widespread, with no forgotten regions. MFIs are very diverse in terms of lending technologies and legal status, which allows room for innovation, but they remain highly concentrated. The data are analyzed by type of MFIs and by geographic regions. The results presented give an overview of the current development of MFIs and offer a benchmark for comparisons.Microenterprises Finance. ,Financial institutions. ,

Distribution, growth, and performance of microfinance institutions in Africa, Asia, and Latin America

How many microfinance institutions (MFIs) exist in the developing world? What are their current performances? In 1999, an International Food Policy Research Institute (IFPRI) team on microfinance conducted a survey on MFIs in Asia, Africa, and Latin America in order to offer a new in-depth analysis on the distribution and performances of MFIs at the international level. A systematic sampling has been adopted through the contacting of international NGOs and networks supporting various MFIs. The information has been complemented by a review of publications and technical manuals on microfinance. The database of MFIs from 85 developing countries shows 1,500 institutions (790 institutions worldwide plus 688 in Indonesia) supported by international organizations. They reach 54 million members, 44 million savers (voluntary and compulsory savings), and 23 million borrowers. The total volume of outstanding credit is $18 billion. The total savings volume is$12 billion, or 72 percent of the volume of the outstanding loans. MFIs have developed at least 46,000 branches and employ around 175,000 staff. The IFPRI database underlines the presence of a multitude of MFIs that, except in unstable countries, are widespread, with no forgotten regions. MFIs are very diverse in terms of lending technologies and legal status, which allows room for innovation, but they remain highly concentrated. The data are analyzed by type of MFIs and by geographic regions. The results presented give an overview of the current development of MFIs and offer a benchmark for comparisons.Microenterprises Finance. ,Financial institutions. ,

Evolution du système financier rural à Java. Indonésie

A travers des études de cas les auteurs décrivent la diversité et le rôle des secteurs formel et informel du système financier indonésien en milieu rural. L'analyse d'exemples concrets montre que l'opposition classique entre formel et informel basée sur le niveau des taux d'intérêt des emprunts n'est pas justifiée : à service égal (de la part du prêteur) et à niveau de garantie comparable (pour l'emprunteur) les taux des deux systèmes sont voisins. Après une période interventionniste, le secteur formel a été soumis à un certain nombre de réglementations libérales depuis 1983. En milieu rural cette politique a entraîné une multiplication des banques et des progrès dans la mobilisation de l'épargne. En revanche les crédits distribués ont diminué par leur volume et leur nombre et sont même inférieurs à l'épargne collectée. Le secteur informel remplit ainsi une fonction essentielle au niveau du crédit et de l'assurance en particulier pour les pauvres. Au niveau institutionnel, se pose le problème de la création de services de crédit capables de répondre à la demande rurale, exprimée actuellement par des ménages et des micro-entreprises qui, pour la plupart, ne remplissent pas les conditions nécessaires à l'entrée sur le marché financier formel

An operational tool for evaluating poverty outreach of development policies and projects

Development institutions and projects frequently seek to target poorer segments of the population. Yet, existing methods for evaluating their outreach are generally unsuited to most operational settings, since they are either too costly and cumbersome (e.g., detailed income or household surveys), or they produce results that are not comparable between villages or regions within a country (e.g., participatory poverty appraisals). This paper presents a new and operationally suitable method to measure the poverty of clients of development projects in relation to the general population of nonclients. The method was developed in response to demands by donors and development practitioners for a low-cost evaluation instrument that could be used as a regular operational tool for assessing the poverty outreach of a development project or institution. While the method was originally developed for the purpose of assessing the poverty outreach of microfinance institutions (MFIs), we believe the method can be used for any development policy or project that pursues an explicit objective of reaching poorer people. The paper begins by discussing existing methods of poverty assessment. Next, the paper presents heuristic steps for identifying indicators of poverty to be tested in the case studies, including the questionnaire that was field tested in four countries with large differences in poverty-level, socioeconomic, and cultural contexts, and with MFIs that worked either in urban, rural, or mixed areas with different target clientele and financial products. The authors then describe the method of principal component analysis used to construct a poverty score as the measure of relative poverty. The paper concludes with a summary of results from four country case studies (two in Sub-Saharan Africa, one in South Asia, and one in Central America).FCND ,Poverty Research Evaluation ,

An operational tool for evaluating poverty outreach of development policies and projects

Development institutions and projects frequently seek to target poorer segments of the population. Yet, existing methods for evaluating their outreach are generally unsuited to most operational settings, since they are either too costly and cumbersome (e.g., detailed income or household surveys), or they produce results that are not comparable between villages or regions within a country (e.g., participatory poverty appraisals). This paper presents a new and operationally suitable method to measure the poverty of clients of development projects in relation to the general population of nonclients. The method was developed in response to demands by donors and development practitioners for a low-cost evaluation instrument that could be used as a regular operational tool for assessing the poverty outreach of a development project or institution. While the method was originally developed for the purpose of assessing the poverty outreach of microfinance institutions (MFIs), we believe the method can be used for any development policy or project that pursues an explicit objective of reaching poorer people. The paper begins by discussing existing methods of poverty assessment. Next, the paper presents heuristic steps for identifying indicators of poverty to be tested in the case studies, including the questionnaire that was field tested in four countries with large differences in poverty-level, socioeconomic, and cultural contexts, and with MFIs that worked either in urban, rural, or mixed areas with different target clientele and financial products. The authors then describe the method of principal component analysis used to construct a poverty score as the measure of relative poverty. The paper concludes with a summary of results from four country case studies (two in Sub-Saharan Africa, one in South Asia, and one in Central America).Poverty Research Evaluation ,

Do microfinance institutions reach the poorest?

The question raised in the title is an important one to the microfinance sector, especially since the Microcredit Summit held in Washington, DC, in 1997. In order to gain more transparency on the depth of poverty outreach, the Consultative Group to Assist the Poorest (CGAP) supported research at IFPRI during 1999 and 2000 to design and test a simple, low-cost operational tool to measure the poverty level of MFI clients relative to nonclients. This policy brief informs about the results from recent case studies on the poverty outreach of four selected microfinance institutions. The case studies were conducted for four MFIs world-wide: MFI A (Central America), MFI B (East Africa), MFI C (Southern Africa), and MFI D (South Asia).Microenterprises Finance. ,Finance Developing countries. ,Financial institutions. ,Finance Southern Africa. ,Finance Central America. ,Finance South Asia. Finance Africa, East. ,

Pathways of rural development in Madagascar

This paper is based on community-level data from 188 villages in rural Madagascar. The survey that was conducted in 1997 made extensive use of long-term recall questions ascertaining changes during the past 10 years in rice yields, wages, population, soil fertility, and other pertinent variables of rural development. We find that—on average for all villages—the yields of irrigated rice, the major food crop, and real agricultural wages declined, while the communities expanded their upland area by nearly a quarter and experienced deteriorating fertility of their upland soils. These patterns are consistent with the wide-held belief that rural areas in Madagascar have witnessed increased poverty, economic stagnation, and a continued degradation of the natural resources. Yet, the five agroecological regions in our sample exhibit quite different patterns of rural development, and at least one of them has experienced increases in yields and wages. From a policy perspective, it is important to better understand the driving forces of such diverse rural change. The overall decline in rural wages over the past 10 years is expected to have contributed to increased poverty, food insecurity and malnutrition in rural areas, as rural wage laborers traditionally belong to the poorest of the poor in Madagascar. In this paper, we present an econometric analysis of the determinants of and interdependencies between the three components of sustainable development: economic growth, environmental sustainability, and poverty alleviation.Crop yields. ,Econometric models. ,Poverty alleviation. ,Rural development projects ,