Eastern Europe and Central Asia: Predictions for 2012
The year 2011 was not particularly easy for microfinance institutions (MFIs) in Eastern Europe and Central Asia (ECA). Though overall many managed to overcome crisis, many MFIs have not yet returned to their pre-crisis growth rates, and delinquency levels were still higher last year than in 2007. One of the issues commonly faced has been client over-indebtedness in the most saturated markets, such as Azerbaijan, Bosnia and Herzegovina, and Kyrgyzstan. And in every country in ECA, what constitutes responsible finance has been a question on the agenda of everyone – from MFIs to microfinance funders and policymakers. As fast-growing consumer finance blends with traditional microlending in many ECA markets, this becomes tougher and tougher to answer. What are some of the issues that will be key for the ECA microfinance sector in 2012? Though it is difficult to give predictions, let me give it a try.
First, the responsible finance discussions will continue and will result in the adoption of codes of conduct by MFIs and common “rules of the game” by microfinance investors. MFI associations in several countries (e.g. Azerbaijan, Kyrgyzstan, and Russia) have been discussing whether to allow multiple borrowing by clients and “how much is too much” in terms of interest rates charged on loans. The divide between socially-oriented MFIs and consumer lenders, which manifested itself starkly in 2011, will become wider, and this will put into question the very definition of microfinance. What kind of an institution will be able to call itself a “microfinance” provider? Is it only a loan amount that matters, or other things, too?
As for microfinance funders, in 2011 some twenty major funders of ECA MFIs have been discussing the introduction of common policies towards MFIs, focused on the prevention of over-indebtedness and transparent loan cost disclosure. More and more funders will want to go back to the origins of the microfinance movement and include social performance indicators in their assessment of MFIs (though we may see some segmentation among different types of funders in terms of the strength of their commitment and their willingness to change incentives to promote responsible microfinance). As for the policymakers, it is possible that some countries will define what an “acceptable” interest rate is (as is under discussion in Russia), and introduce stricter financial service consumer protection requirements for MFIs. We see indications of this in the new draft laws currently discussed in Kazakhstan, Kyrgyzstan, and Tajikistan.
In addition, at the policy level the microfinance sector will be further integrated into the mainstream financial sector. Microfinance regulation in most ECA countries treats MFIs as financial institutions. In Bosnia and Herzegovina, Kyrgyzstan and Moldova, for example, MFIs are included in Central Banks’ reports on the state of the financial sector. In Russia, there are plans to measure the level of financial inclusion by covering all players, including not just banks, but also MFIs and branchless banking payment service providers.
Finally, what I hope will start to happen in 2012 is something that has just begun – and which has been rare until now, in ECA and internationally – and that is the integration of microfinance with branchless banking solutions. ECA has various branchless banking options and is home to a unique solution – cash acceptance payment terminals. The latter originated in Russia but has now spread all over the region and even beyond – to Latin America and India. There are mobile banking options, too, offered by mobile network operators (which recent regulatory reform in Russia positions to take off). Yet neither payment acceptance terminals nor mobile banking services go beyond payments yet. Will MFIs make use of any of these options that can potentially reduce their costs and add convenience for their customers? I dare to predict that it is the Georgian microfinance sector that will become a regional pioneer in adopting innovative branchless banking solutions. In 2012, the country expects a launch of a mobile phone-based payment platform that from the outset is designed to include all financial market players and will be accessible to all cell phone users.
Only time will tell if my predictions come true, but whether or not all of this happens in 2012 is not that important; what is important is that the changes should be in the best interests of the microfinance clients in ECA.
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