Latin America tops Global Microscope Index on the microfinance business environment 2011

Peru and Bolivia have the best environments for microfinance in global ranking

Eight of the top dozen countries with the best business environment for microfinance are from Latin America, according to the Global Microscope on the Microfinance Business Environment 2011 prepared by the Economist Intelligence Unit (EIU).

This annual study ranks the business environment for microfinance in 55 countries and provides a perspective on both country-specific and global trends. This year’s study reports that the global microfinance industry has begun to enter a more mature and sustainable growth phase, made possible by improvements in corporate governance, regulatory capacity and risk management. The research highlights, however, that regulatory and market gaps still remain, undermining the industry’s ability to realize its potential and enhance financial access to the poorest.

Peru ranks first followed by Bolivia, Pakistan and Kenya, according to the 2011 ranking, which compares the microfinance sector in countries and regions across two broad categories—Regulatory Framework and Practices and the Supporting Institutional Framework. These are complemented by an adjustment factor for political shocks and stability.

The strong results for Latin America have been driven by high scores on elements that enable the microfinance business, particularly the existence of credit bureau infrastructures that are relatively well established in the region.

Other Latin American countries that made into the top dozen include: El Salvador, Colombia, Ecuador, Mexico, Panama and Paraguay. Mexico and Brazil, Latin America’s biggest economies, made important strides in improving the environment for microfinance businesses with both countries now ranked among the top 15 performers.

The report notes that, as a group, Latin American countries perform less well on the Regulatory Framework and Practices, although top performers—Bolivia and Peru—joined by El Salvador, Ecuador and Panama, hold their own in the overall rankings, placing them in the top 10 worldwide.

Other highlights for the region include:

• Peru has one of the most sophisticated microfinance sectors in the region thanks to the effective supervisory capacity of its principal regulator, the Superintendency of Banking, Insurance, and Pension Funds, and a favorable legal framework that sets forth well-defined rules for both regulated and non-regulated microfinance institutions.
   
• Bolivia maintains a strong and favorable microfinance regulatory environment with outstanding practices in price transparency (top global performer), dispute resolution and a comprehensive credit bureau system.
   
• El Salvador continues to perform consistently well. It is the top performer in Central America and it holds the fifth position in the global ranking. El Salvador has a particularly strong regulatory framework (seventh in that subcategory) and its microfinance industry presents reasonable accounting standards and presents a relatively well-developed credit bureau systems.
   
• Among the top 10 ranking countries overall this year, Mexico’s score improved greatly, rising 13 places to the tenth position, following important efforts to streamline microfinance regulation, improvements in standardizing accounting practices and recent reforms that boost consumer protection in terms of pricing transparency and dispute resolution.