Lessons from the MIX in Tracking Islamic Microfinance Development

As CGAP’s analysis over the last several years has shown, Islamic microfinance providers represent a growing and important niche within the market of financial services specifically targeting the poor. Outreach has grown four-fold in just a few years in a market estimated at 650 million strong. Consistently tracking and analyzing the performance of these providers will be key to improving their services and, in turn, broadening their outreach.

Over the last decade, the microfinance sector has built up the infrastructure necessary to carry out such analysis. One piece of that infrastructure, MIX Market, provides access to current and historical financial and social performance information on more than 2,100 microfinance institutions serving some 94 million clients worldwide.

To be sure, some of these institutions offer Sharia-compliant windows for their Muslim clients. But what about institutions that offer only Islamic products? What does their performance say about the development of the Islamic microfinance industry, and can they learn by comparisons with the broader microfinance market?

Women make bread.

Products and Clients, Not Providers

To answer that question, let’s take a closer look at MIX Market. The platform works precisely because it levels the playing field for microfinance providers, bringing together a range of them—across regions and regulatory regimes—based on the products that they offer and the markets that they serve. For example, we feature data on large banks or cooperatives that may not be typical microfinance institutions but are important players in this space because they report on extensive microenterprise portfolios or low-balance deposit accounts.

With more and more Islamic banks taking an interest in reaching “down-market”—a trajectory guided, in part, by these institutions’ focus on providing economic opportunities to the less advantaged—MIX Market can help them establish meaningful comparisons by analyzing the performance of standard products and their impact on clients.

Why does this focus on products and clients matter? For one thing, it can allow Islamic microfinance practitioners to see how policy interventions impact financial services for the poor across provider types. For example, when changes in capital adequacy requirements for deposit-taking institutions take effect, MIX Market users can track the performance of these institutions before and after the changes, compared against credit-only providers. They can see whether new regulatory regimes for regulated providers appreciably increase compliance costs—and therefore the cost to clients.

Information is Power

Although at any given time only a portion of microfinance providers represented in MIX Market may be impacted by changes in their respective countries of operation, there is enormous value in seeing their evolution alongside that of other providers who serve poor and low income families and their businesses with similar products.

This juxtaposition can also empower policymakers and Islamic microfinance practitioners to make more informed decisions about how best to provide financial services at the bottom of the pyramid by drawing on comparable experience for fact-based decision making.

Although Sharia-compliant products will require unique metrics, measuring the impact of these products will benefit Islamic microfinance practitioners by allowing them to compare their operations with those of their conventional microfinance peers.

For its part, MIX looks forward to engaging Islamic microfinance institutions and their partners as they investigate additional metrics relevant to Sharia-compliant products. The microfinance industry as a whole stands to benefit from gathering relevant, comparable information on this important, growing segment of financial services for the poor.

--------Blaine Stephens is Chief Operating Officer of the Microfinance Information Exchange.