Championship League: The Top 100 in Latin America and the Caribbean

Microfinance Information Exchange, Inc. (MIX)

As 2005 drew to a close, the leading microfinance institutions in Latin America and the Caribbean (LAC) continued their growth path. Fueled by an increasing injection of market funding, MFIs expanded their outreach by 33% over 2004. Commercial debt, including strong mobilization of public deposits, topped 90% of loan portfolio funding in 2005. Investors flocked to the 3% return on assets and nearly 18% return on equity, with commercial funding advancing 4 percentage points during the year. Combined with average loan balances under US$1,000, MFIs in the sector also remain an undisputed magnet for socially motivated investors.

MicroEnterprise Americas brings readers this year’s TOP 100 in Latin America and the Caribbean according to the Microfinance Information Exchange (MIX), an annual snapshot of the leading microfinance institutions across the region. Drawing on a survey of nearly 130 MFIs, the MIX uses the latest data reported by auditors, regulatory agencies and other sources at year-end 2005 in seven different areas. Taken as a group, these 100 institutions managed US$6.6 billion in more than 6 million loans to microentrepreneurs and low-income clients in 15 countries across the region.

Scale

The year 2005 was a banner year for large-scale MFIs in Latin America and the Caribbean. Caja Popular Mexicana led the TOP 100 for the second year in a row with more than 550,000 loans outstanding. However, institutions from several different countries rapidly closed the gap and redefined the potential for achieving scale throughout the region. The number of MFIs with more than 200,000 loans doubled from three to six, and 15 now count more than 100,000 outstanding loans. Banco Caja Social in Colombia (BCSC) finished the year with a gross loan portfolio that shattered the US$1 billion mark, leveraging its acquisition of the Colombian bank Colmena to rank among the largest microlenders globally.

Also of note this year, banks and credit unions swept up nine of the ten top spots. The success of these institutions, which are permitted by their respective governments to accept client deposits, demonstrates the power of mobilizing savings in building scale.

Growth

The LAC microfinance market quickly expanded in 2005 with almost 20 institutions in the TOP 100 increasing their number of loans provided by 50% or more. The institutions with the largest relative increases tended to be smaller in scale. However, some larger MFIs also reported strong relative growth numbers. ACODEP, one of the biggest MFIs in Nicaragua, increased its number of loans by 68% and nearly doubled its gross loan portfolio.

As expected, larger institutions dominated absolute growth measures. Of the 10 leading MFIs in account acquisition for 2005, eight began the year with at least 50,000 outstanding loans. Although not included in the list of relative growth, Compartamos outshined the pack by adding more than 150,000 accounts at almost 50% relative growth, an impressive feat for an institution of its size.

One of the most notable stories of 2005 was BanRural in Guatemala. It crossed the 140,000 loan mark, nearly doubling in size, and ranked fifth in relative growth and second in absolute terms, surpassing several larger institutions.

Depth of Outreach

For the third year in a row, MFIs deploying the village banking model provided the smallest loans in the region. As with last year, Pro Mujer Peru, with its US$97 average loan balance, vied with FINCA’s Mexican affiliate for the top of the list. Both institutions effectively reached the lowest income sectors, keeping their ratio of average loan balance to gross national income (GNI) per capita at 4.1% or lower.

Also of note, the top MFIs in this category showed significant improvement over 2004 in reaching the low end of the market. Not only did FINCA Mexico push the relative average loan balance to a new low, but 15 of this year’s top finishers kept the ratio under 10%, compared with only eight last year.

Savings

One of the biggest developments in LAC microfinance in 2005 was the growth of the burgeoning market for microsavings products. LAC institutions on the list managed over US$ 3 billion in client deposits in 2005, a 30% increase from the previous year. Each of the 10 largest institutions on this year’s list takes deposits to finance growth. The 2005 leader Caja Popular Mexicana captured almost US$ 1 billion in savings, more than enough to finance its entire loan portfolio. As more MFIs become regulated, mobilizing deposits will grow in importance in increasingly competitive LAC markets.

Efficiency

Not surprisingly, the top 10 most efficient MFIs all carried higher-end average loan balances over US$500. They showed strong improvement in 2005, with eight institutions spending less than 10% of their gross loan portfolio on operating expenses, compared to three in 2004. Peru’s CMACs put in an especially good performance, with many improving efficiency by one percentage point or more as they achieved scale.

Of the small balance lenders, only two institutions—Pro Mujer Bolivia and Interfisa—decreased their cost of lending, while the majority dealt with increased operating costs, pushing some out of the top spots. Generally, the most productive institutions measured by average number of loans per staff member were also the most efficient. The formidable Women’s World Banking affiliate in Popoyán, Colombia, outperformed the other smaller-balance institutions due to its extremely productive staff.

Asset Quality

A surprising and encouraging result of this year’s TOP 100 ranking is that low-risk portfolios were achieved in almost every country surveyed. Institutions from all corners of the region are represented among the top 20 in asset quality. While external economic and political conditions can always affect MFI performance, good lending practices are still a key driver of portfolio risk in any country.

MFIs incorporating the village banking model continue to prove adept at minimizing risk in their portfolios. Two Peruvian MFIs, Pro Mujer and ADRA, led the pack, showing no delinquency at year end. However, some institutions focusing on individual products and solidarity groups also proved savvy lenders. D-Miro and Credife in Ecuador both cleaned up their portfolios to improve dramatically from 2004, reporting less than 1% delinquency in 2005.

Profitability

The most profitable institutions on this year’s list saw strong increases in adjusted return on assets (AROA) over 2004. Two of the top three improved returns by over three percentage points. Mexico’s Compartamos set itself apart from the rest, achieving a record 19.6% AROA and 51.2% adjusted return on equity (AROE). Peru’s ADRA and Pro Mujer affilitop ate leveraged their zero-risk portfolios into top performing spots. The Women’s World Banking affiliate in Popoyán, Colombia, translated its high operational efficiency into a strong bottom line.

Even more compelling is the high AROE of 18% in the region. LAC institutions have become more leveraged as a result of growing commercialization in the sector. As more investors turn to microfinance as a viable investment option, strong return onequity will take on increasing importance for MFIs.

Conclusion

Looking to 2006, the LAC microfinance industry is poised to continue on its current track of strong growth and profitability while improving access to financial services for all in the region. But there are several storms on the horizon that MFIs may have to face. Many will be anxiously watching the political arena as governments in several South American countries consider rolling out state-sponsored microfinance initiatives. MFIs may also have to deal with the consequences of a global rising interest rate environment and client over-indebtedness in some portions of their portfolios. Watch this space for next year’s TOP 100 in Latin America and the Caribbean to find out how the industry faces the challenges ahead and which institutions end up on top.

MIX and MicroEnterprise Americas would like to thank all participating institutions for sharing their financial and outreach information and advancing transparency in microfinance.

Methodological Note: All data are presented in USD for the year ending December 31, 2005. Financial data must be provided along with third-party documents verifying the accounts. All data are reclassified to industry standard financial statement presentation and then adjusted using MIX standard MicroBanking Bulletin methodology. Only loan and portfolio information from the “scale” list remains unadjusted.

Microfinance programs and departments within larger entities must also provide reliable allocations of income statement items to be eligible for the subsidiary top 10 lists. Otherwise, MFIs that cannot be completely analyzed are only eligible for the lists based on volume and are listed with an asterisk (*).

Following the methodology of MIX, the analysis uses a definition of microfinance based on the average size of a financial product relative to average individual income levels (GNI per capita), with a ceiling for average balances equivalent to US$3,000. This classification does not generally distinguish between the destination or the use of the loan, due to the fungible nature of money and the impossibility of rigorously singling out microenterprise credit for all institutions. Institutions among the 10 largest that may offer a broader array of credit products are marked with a cross (†).

In some cases there are differences between the results reported here and in the report from 2004. These are due to revisions made by the MFIs. Notable exceptions from this list have likely been excluded because they could not or would not provide or substantiate information within the allotted time frame. Some institutions could not appear in the scale list because of size but did appear in other categories due to performance.

Acknowledgments: The authors would like to thank analysts Anne-Lucie Lafourcade (MIX) and Gerardo Talavera (REDCAMIF) for their contributions to significantly expanding this year’s MFI coverage. Many thanks to the following organizations that provided valuable assistance in facilitating the collection of data for this article: COPEME, REDCAMIF, RFR, ACCIÓN, ProMujer, FINCA International, and ProCredit Holdings.