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. ,

Lapenu, Cécile

English

Research Papers in Economics

R R U U R R A A L L     F F I I N N A A N N C C I I A A L L     P P O O L L I I C C I I E E S S    
f f o o r r     F F O O O O D D     S S E E C C U U R R I I T T Y Y     o o f f     t t h h e e     P P O O O O R R  
 
 
IFPRI 
 
 
 
 
 
 
 
RESEARCH 
PROGRAM 
MISSION 
The research 
program titled Rural 
Financial Policies 
for Food Security of 
the Poor seeks to 
identify policies and 
institutional 
arrangements that 
help the poor 
integrate themselves 
into sustainable 
savings and credit 
systems in order to 
increase capacity to 
invest, bear risk, and 
preserve livelihoods.
 
FOCUS 
COUNTRIES 
• Bangladesh 
• Cameroon 
• China 
• Egypt 
• Ghana 
• Madagascar 
• Malawi 
• Nepal 
• Pakistan 
 
ABOUT THE 
AUTHOR 
Cécile Lapenu  is a 
member of the Food 
Consumption and 
Nutrition Division at 
IFPRI. Her area of 
research is house-
hold participation in 
rural financial 
institutions. 
 
POLICY BRIEF No 5   •   JULY 2000 
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. 
 
 
 
Lending Technologies 
 Four main types of lending technologies can be dis-
tinguished in terms membership, the role of savings, and 
the guarantees used for the loans. These are cooperatives, 
solidarity groups, village banks, and individual client-
based institutions. 
 The IFPRI database shows that when Indonesian MFIs 
are included, the individual client-based institutions pre-
dominate in number, followed by solidarity groups and 
cooperatives. Cooperatives and solidarity groups have 
about the same number of members. On the other hand 
solidarity groups have the largest number of borrowers, 
which reveals an active policy of lending for solidarity 
groups. The cooperative model dominates in loans and 
savings volume, followed by solidarity groups. 
 Indonesian individual-client based MFIs are numerous 
but, except for the Bank Rakyat Indonesia, mostly repre-
sent small institutions at the village level. If these MFIs 
are excluded from the sample, then solidarity groups 
dominate in number and in terms of borrowers, while 
cooperatives dominate in terms of volume of savings 
mobilized and loans disbursed. Village banks account for 
a significant number of MFIs and branches and for 12.5 
percent of members but remain small in terms of volume. 
Size and Share of Market 
 MFIs are also quite diverse in terms of size: 49 percent 
of MFIs have fewer than 2,500 members, 73 percent have 
10,000 members or fewer, and only 7.5 percent have 
more than 100,000 members, which represents an im-
pressive world of tiny institutions. This diversity is due to 
the fact that competition is uneven; donors and govern-
ments subsidize institutions of various sizes (with small 
MFIs receiving relatively larger shares of subsidies in 
relation to their costs). Also, market segments in which 
they operate differ in terms of products and clientele, and 
small MFIs entering new market segments, such as rural 
areas or rural poor, have higher startup costs. The combi-
nation of these factors results in a financial system with a 
multitude of institution types but a concentration of 
activity at the top. According to IFPRI’s database (for 
MFIs in which the number of members is known), 3 
percent of the MFIs (the 18 largest ones) account for 80 
percent of the clients. 
 
Legal Status 
 In terms of their legal status, MFIs generally take one 
of the following forms: projects, nongovernmental 
organizations, cooperatives, or banks. Table 1 shows that 
91.5 percent of MFIs, with more than 100,000 members, 
are regulated under cooperative law or banking law, while 
the same is true for only 16 percent of MFIs with fewer 
than 20,000 members. Although around 60 percent of 
MFIs are still unregulated, they account for less than 2 
percent of the volume of savings mobilized and loans dis- 
 
Table 1. Regulation status of MFIs, by number of 
members 
  Size of MFI, by number of members 
Status of regulation  0-20,000 
20,000- 
100,000  >100,000  Total 
          Regulated—cooperative, bank 
  (percent) 
 
 15.8 
 
 51.6 
 
 91.5 
 
 24.6 
Unregulated—nongovernmental  
  organization, project (percent) 
 69.0   35.5   8.5   61.4 
Not available (percent)   15.2   12.9   0   14.0 
Number total of MFIs   538   62   47   650 
Source: IFPRI survey on worldwide MFIs, 1999. 
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 
2033 K STREET, NW, WASHINGTON, DC 20006-1002 USA 
Web: www.ifpri.org   •   Phone: 1-202-862-5600   •   Fax: 1-202-467-4439   •   Email: ifpri@cgiar.org 
Current State of Development and Prospects for Microfinance 
Institutions 
CÉCILE LAPENU 
Diversity Among MFIs  
ABOUT IFPRI 
 
IFPRI’s mission is 
to identify and 
analyze strategies 
for meeting food 
needs of the 
developing world, 
with particular 
emphasis on low-
income countries 
and the poor. 
 
IFPRI is a member 
of the Consultative 
Group on 
International 
Agricultural 
Research (CGIAR). 
 
- - - - - - - - - - - - - - 
 
Any opinions 
expressed herein are 
those of the 
author(s) and do not 
necessarily reflect 
those of IFPRI. 
 
- - - - - - - - - - - - - - 
 
CONTACT 
Bonnie McClafferty 
Communications 
Specialist 
B.McClafferty@ 
   CGIAR.ORG  
 
bursed. More than 95 percent of the volume of micro-
finance transactions flows through regulated institutions. 
 
 
 
Breadth and Depth of Outreach 
The extreme concentration of activity among the 
largest MFIs underscores the current difficulty in signifi-
cantly and rapidly increasing MFIs’ breadth of outreach. 
MFIs must be supported and innovation must be used so 
that they can reach a significant scale in terms of the 
number of clients and the volume of activity. 
Efficiency in depth of outreach can come from three 
main strategies. First, some huge institutions, such as the 
Bank for Agriculture and Agricultural Cooperatives in 
Thailand or the Bank Rakyat Indonesia, have an 
impressive breadth of outreach. They may only have a 
low percentage of poor among their clients, but on the 
whole, they can reach more poor households compared 
with tiny nongovernmental organizations that struggle to 
target specifically the poorest but that have no means to 
grow in scale. Second, some solid, self-sufficient institu-
tions, which first concentrate their efforts on institution 
building and financial autonomy, can develop, in a second 
step, direct services or links for reaching the poor. Final-
ly, some institutions clearly focus their services on the 
poor. They target actively and rely on specific organiza-
tions to compensate for the specific costs and constraints 
faced in reaching the poor: e.g., village banks or solidarity 
groups delegate part of the screening and monitoring 
process to clients and use new forms of guarantees to 
lower costs. This last category of MFIs generally grows 
more slowly and takes more time to reach self-
sufficiency. 
 
Regulation 
The necessity for regulating microfinance is based on 
several arguments. The protection of savers is generally 
the first argument. To implement efficient intermediation, 
MFIs will also have to leverage capital and mobilize 
external resources. This requires them to formalize their 
activities and to follow standard financial rules to gain the 
confidence of other financial institutions. Finally, MFIs 
may find that official recognition gives them a competi-
tive edge over informal competitors. 
Even if it is generally accepted now that specific regu-
lations can be defined for MFIs, the debate continues on 
which MFIs should be regulated. All tiny MFIs clearly 
cannot be regulated and supervised. Moreover, many 
large MFIs are already regulated. The question of regula-
tion is importantly linked to the change of scale of some 
nongovernmental organizations that will have to grow 
larger to serve more clients. 
 
Innovation 
The IFPRI worldwide survey underscored the MFI 
industry’s progress in overcoming many constraints. 
However, innovations are still necessary to further im-
prove outreach, to reach sustainability more rapidly, and 
to expand the provision of sustainable financial services 
in areas where little progress has been made. These areas 
are smallholder agriculture, credit for agribusiness, and 
insurance (such as old age, disability, unemployment, and 
health). 
 
Support for MFIs 
Given the current structure of the financial systems 
with a large number of tiny MFIs, and given the need for 
innovations, two types of MFIs should be supported in the 
financial landscape: those for profit and those that have a 
social ambition. Their characteristics are outlined in 
Table 2. 
 Of course, the world of microfinance is not strictly 
divided between these two types; indeed, a range of 
situations falls between these extremes. Further, a dy-
namic must be encouraged so that small MFIs can grow 
and serve more clients. However, both types should be 
encouraged, as each fulfills a specific role in the outreach 
and innovation generation. In particular, they nourish 
each other in terms of innovation: small organizations can 
benefit from the information on regulation and best 
practices to improve their performance and governance; 
large organizations can draw on the pool of innovations 
bearing on breadth and depth of outreach tested by 
smaller nongovernmental organizations. The diversity of 
the world of MFIs must be seen as an asset and not 
necessarily the result of inefficient support.￿ 
 
 
Table 2. Main characteristics of the two types of MFIs 
MFI characteristic  For-profit MFIs  Nonprofit MFIs 
Size  Large  Small 
Regulation  Formal financial institution (bank, cooperative)  Unregulated status (project, nongovernmental 
organization) 
Main objective  Financial self-sufficiency, breadth of outreach  Impact on the poor, innovation, depth of outreach 
Main means  Application of well-known best practices  Search and test of innovations 
  Professional and efficient functioning  Professional and efficient functioning 
  Incentive structures for staff and clients  Incentive structures for staff and clients 
Lending technology  Mainly individual approach and cooperative  Solidarity groups, village banks, linkage, 
innovative technologies 
Financial activities  Full-fledged financial services (credit, savings, 
insurance) 
Most begin with credit, some with savings 
Complementary services  None, or minimalist approach  Possible (training, social services) 
Sources of funds  Savings, interbank loans  Concessionary loans 
Dependence on 
subsidies 
Maybe in the short run, rapidly declining  In the medium term, slowly declining 
Self-sufficiency  Rapidly reached (few years)  Slowly reached (can be 5 to 10 years or more) 
Incentive  Profit  Donor or sponsor-driven: national or international 
recognition, concessionary funding, evolution 
towards more autonomy 
The Future of MFIs 

Current state of development and prospects for microfinance institutions

http://www.ifpri.org/sites/default/files/publications/mp05_brief05.pdf

Current state of development and prospects for microfinance institutions

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