Microfinance in 2010

Once a year, CGAP’s membership and governance body, the Council of Governors, meets to set CGAP’s broad policies and strategic direction, provide inputs to our annual workplan and budget, and debrief one another on the latest trends in financial inclusion. That meeting is underway this week in Nairobi, Kenya, and began with remarks from acting CEO Alexia Latortue on the state of the industry and how CGAP has changed since its inception in 1995.

2010 marks CGAP’s 15th anniversary, providing an opportunity to reflect on the state of microfinance today and CGAP’s role within it. Is microfinance a mature industry, or one still experiencing growing pains? Are the ripples of the financial crisis still spreading, and what new forces are shaping the direction of microfinance in years to come?

Today, there are many more microfinance clients than there were in 1995. Between 2004 – 2008, the average compounded growth rate of microfinance institutions (MFIs) reporting to the MIX was 43%. There are now between 100 and 150 million clients. What breakthroughs will help us reach much more massive scale responsibly? How can providers be ambitious about growth objectives while staying focused on the quality of client services?

More institutions are sustainable. Very few institutions were at the beginning, and there was even disagreement about whether they could be or should be. Yet, today, once you take away clients served by state banks, about three-quarters of total clients are served by sustainable institutions. In a few markets, we are even approaching saturation or real competition.

Looking forward, how do we deal with the fact that despite overall progress, some parts of the world sorely lack good, strong institutions? Why are some markets well-served while others remain virtually ignored? And where there is competition, will it be a positive force for microfinance, or are there some risks?

In 1995, there was little transparency and it was difficult to get a correct sense of how an MFI was doing. Today, 1700 MFIs, over 100 investors and almost 200 partners report to the MIX. Audited financial statements and rating reports are online. During the financial crisis, some networks requested and received weekly or even daily updates from their investees. Transparency has also extended to funders, notably microfinance investment vehicles that report financial and social performance annually. So, what is there to do on this front? Basically, continue to improve transparency.

For increasing financial inclusion, in 1995 delivery technologies such as branchless banking was unheard of then. Now, it has captured the imagination of many. Will branchless banking not only reach poor people, but offer them quality, diverse financial services that help improve their lives?

The global microfinance club was readily identifiable 15 years ago. Today our world has gotten more complicated. The “industry” and players that constitute it has expanded dramatically. The diversity of financial service providers that serve poor people is great and there are now also entrants we would not have imagined before—such as mobile network operators. There are also a much broader number of funders engaged in microfinance. And finally there is a multiplication of initiatives and institutions creating and disseminating analysis, knowledge, and tools for microfinance.

At one time a cute development idea, microfinance today is increasingly seen as a legitimate part of the financial system in many countries. Microfinance is moving into the regulated deposit sector and dozens of countries have regulatory regimes for microfinance. Microfinance/financial inclusion is on the agenda of numerous governments and standard-setting bodies. We are getting what we wanted—the borders of microfinance and financial systems development have blurred, but does the microfinance industry understand well—and is it well equipped—to deal with the full implications of this?


10 September 2012 Submitted by Mandar Marathe (not verified)

One of the services that branchless banking (MFIs) institutions need to offer is Education to the poor. If not, they should at least have agents that are capable of disbursing business acumen to Self Help Groups. Without providing direction and knowhow, most of the loans provided to rural communities would not be put to proper use.

The vision of microfinance should extend beyond providing loans at a lower interest rate to providing guidance and education for rural entrepreneurs who take these loans.

CGAP is doing a great job since 1995!! Cheers!!

Mandar Marathe

10 September 2012 Submitted by Azhar Nadeem (not verified)

This is truely a story about a journey which is still on. This started from nothing, a scratch and just an acute development Idea. In 2010 CGAP stands an icon of Microfinance Industry.

While much is achieved in microfinance, here starts a new journey in 2010. i.e Islamic Microfinance Challenge 2010. Journey will continue with more developments in indusrty


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