ECA Microfinance at a Glance

July 16, 2009    

The Europe and Central Asia (ECA) region is made up of 22 countries, with a total population of about 366 million people. The region can be divided into five subregions, each with its distinct features: The Balkans, Caucasus, Central and Eastern Europe (CEE), Central Asia (CA), and Russia.

The ECA subregions are characterized by various wealth levels. Overall, about 20 percent of the population in the region—more than 71 million people— live below the national poverty line (Table 1).

Table 1. Macroeconomic Indicators by Subregion

Source: World Bank, National Statistics Agencies, 2007

In this region, there is a sharp contrast between consolidation in more mature microfinance markets, such as that of the Balkans, and proliferation in the relatively younger markets of CA and Russia. In terms of active borrowers, an average microfinance institution (MFI) in the Balkans is seven times larger than an average MFI in the Caucasus, and over 20 times larger than an MFI in CA (Table 2).

Table 2. Institutions Providing Microfinance in the ECA Region: Number and Outreach by Subregion

Source: CGAP 2008 MFI Survey, MIX Market 2007, WOCCU 2007

For almost 10 years, ECA policy makers have been engaged in developing legal and regulatory frameworks for microfinance. Some countries, including Bosnia and Herzegovina, Kyrgyzstan, and Tajikistan, have adopted specialized, tiered microfinance laws. Some, such as Georgia and Kazakhstan, have adopted narrower laws focused on specific types of MFIs. Others, such as Armenia, have made adjustments to existing financial sector regulation to “fit” microfinance. And in a number of countries, such as Russia, microfinance is carried out under the existing financial sector and general legal and regulatory framework with little or no adjustments.

Several countries, such as Serbia, are faced with the challenge of harmonizing their legislation and regulations with the European Union. Others are in the process of considering a new legislation for nonbank financial institutions (in the case of Azerbaijan) or financial cooperatives (in the case of Russia).

Policy-related issues and challenges
For the most part, MFIs have not become fully integrated within local financial systems. Deposit mobilization by MFIs and transformed institutions has not become a mainstream service in ECA.

The development of financial infrastructure for the microfinance sector in ECA has not received enough attention. In most countries, general banking customer protection and loan conditions disclosure requirements are not fully applicable to nonbank institutions.

Some countries in ECA, especially Russia, currently see the development of a whole range of branchless banking solutions. Consistent with CGAP global experience, it is not banks or MFIs, but rather other industry actors that are at the forefront of these developments in ECA. Virtual lack of regulation in this area raises a number of important systemic and customer protection concerns.

See the full report on ECA microfinance, prepared jointly with the Microfinance Information Exchange.