By Matthew Gerhrke, Renso Martinez and Maria Cecilia Rondon, Microfinance Information Exchange, INC. (MIX)
Microfinance in Latin America and the Caribbean skyrocketed in 2007, fueled by booming demand for financial services from microentrepreneurs in the region’s fastgrowing economies along with new funding in both debt and deposit. The region and its microfinance institutions (MFIs) remained in the forefront of attractive investment opportunities.
MFIs continued to fund 80% of the region’s loan portfolios with more than US$11.7 billion in commercial funding to keep pace with a record 37% portfolio growth during the year. However, fast growth also boosted competition, resulting in a decline in profi tability. Return on assets fell from 3.1% to 2.5% and return on equity dropped from 10.6% to 9.8% as institutions felt the impact of new entrants and increasing portfolio risk across the region.
MicroEnterprise Americas and the Microfi nance Information Exchange, Inc. (MIX) are pleased to present this year’s Championship League, our annual report ranking the region’s leading microfinance institutions in eight performance categories. Drawing on a survey of 193 MFIs, we analyzed the latest, highquality data from auditors, regulatory agencies and other third-party sources to report on MFI performance for 2007. Taken as a group, these 193 institutions in 15 countries across the region ended the year managing US$12.8 billion in more than 11.7 million loans to low-income clients across all credit types. Credit specifi cally to microentrepreneurs grew by 41.7 percent to more than US$6.2 billion in approximately 6.5 million loans.
This year’s Championship League ranking begins with a fresh, new look at an increasingly diverse microfi nance industry in Latin America and the Caribbean—the top 100microfinance institutions are ordered by the number of active loans to microentrepreneurs at the end of 2007.
With almost 1.4 million loans, Mexican MFIs served more microentrepreneurs than in any other country in the region thanks in part to CompartamosBanco’s massive outreach. However, with slightly fewer loans, Peru almost tripled Mexico by fi nishing the year with US$1.57 billion lent to microentrepreneurs.
The difference between these two important markets was due to the average loan balance, which at US$1,192 in Peru was almost three times that of Mexico. While traditional market leaders such as Mexico’s giant CompartamosBanco continued to stand out for their huge outreach, the difference in size between most MFIs in the top positions and those further down the list was reduced when only taking microenterprise credit into account. Nor were there many significant changes in placement among the region’s largest MFIs. Brazil’s CRESOL BASER, a large collective of credit cooperatives operating in the southern part of the country, rose seven places, taking advantage of the tremendous potential offered by the gigantic Brazilian market.
For a second year in a row, Mexican MFIs leveraged their high returns to expand rapidly, leading the ranking for growth in microenterprise loans. Apoyo Económico was the region’s fastest-growing Microenterprise lender during 2007, exploding in size with a hefty investment in infrastructure to better serve markets thirsty for fi nancial services. Forjadores de Negocios more than quadrupled in size thanks to a healthy injection of capital and management experience from the owners of Peru’s MiBanco. Among the top-growing MFIs during 2007, lenders from other countries also figured prominently. D-Miro placed in the top fi ve, buoyed by fresh funding to serve an increasing number of clients in and around Guayaquil, Ecuador’s largest city. Two Caribbean MFIs placed among the top ten finishers. The Dominican Republic’s Fundación San Miguel Archángel and FINCA Haiti each more than doubled in size, showing the potential for growth in the sub-region.
As a new addition to this year’s Championship League ranking, we examine the outreach of microenterprise credit operations relative to the poor population in each Latin American and Caribbean country. MFIs from three of Latin America’s lowest per-capita income countries took center stage in serving high proportions of microentrepreneurs. Institutions in Bolivia, Nicaragua and Paraguay occupied 14 of the top 20 positions, the result of years of intense growth and competition relative to their smaller populations. Assuming no client overlap, leading MFIs in these three countries served up to 12.1%, 10.9% and 8.6% of potential markets, respectively.
Some MFIs from the largest Latin American economies ranked high in terms of market penetration as well. Chile’s BancoEstado took the lead, serving more than one in 20 of its nation’s low-income citizens. CompartamosBanco was not far behind, capturing nearly 5% of Mexico’s poor population in its quest to be the first Latin American and Caribbean MFI to actively serve one million microentrepreneurs.
This year we present another new scale—the top 10 MFIs ranked by the consumer microloan portion of their portfolio. While not a comprehensive survey of consumer lending in the region, with nearly US$4.5 billion in portfolio and 5.2 million active loans, consumer microlending by MFIs grew by 32.2% as many institutions broadened their product lines to serve their clients’ financial needs.
Consumer loans from participating MFIs did not always follow conventions. Loans easily qualifi ed as “micro” with a median average balance at US$825, only slightly higher than microenterprise loans. Moreover, consumer loans were not necessarily used for consumption. According to a client survey by Caja Popular Mexicana, one of Latin America’s largest cooperatives, 20.7% of its consumer loans were for productive use in 2007, essentially placing it among the largest microenterprise lenders in the region.
While commercial funding kept pace with 2007’s strong loan portfolio growth, savings did not expand as quickly as borrowings as a funding source in the region, falling from 74% to 70% of total commercial funding. In fact, only one MFI featured in this survey became regulated during the year. Nevertheless, savings remained critical to loan portfolio growth for regulated MFIs as microsavings portfolios increased by 28.1% to US$8.2 billion in more than 9 million accounts. Banco Caja Social Colombia led the region with more than US$2.5 billion in voluntary savings by taking advantage of a growing economy and light competition for savers as most other Colombian MFIs were not permitted to mobilize deposits.
In both Peru and Bolivia, regulated institutions sought to consolidate their hold on the savings market as the competitive landscape prepares to shift dramatically in 2008. Peruvian CMAC institutions (Municipal Savings and Credit Unions) were recently authorized to open branches in any market in the country, allowing the municipal giants to compete directly for the fi rst time. In Bolivia, 15 NGOs, including some of the country’s largest MFIs, are in the process of becoming regulated and will for the first time offer savings products previously available only at regulated FFPs and cooperatives.
Despite stiff competition in the region, Latin American and Caribbean MFIs achieved only a 3.3% increase in operating efficiency in 2007. It is possible that these modest efficiency gains for many MFIs were primarily due to a tendency to disburse larger loans as the median average loan balance across all credit types increased by 13.2% during the year. Since operating efficiency indicators can benefit from increasing loan balances and the attendant distribution of costs over larger loan portfolios, this may have been the case. While almost all MFIs on the >US$500 table averaged loan balances well above US$1,000, Colombia’s FMM Popayán shone among Latin America’s most efficient lenders thanks to its extremely productive staff, despite a relatively low average loan balance. On the <US$500 table, FODEMI and FINCA Ecuador stood out among top fi nishers by increasing their efficiency while actually decreasing their average loan balance.
Increasing competition for clients throughout the region and pressure on borrowers due to rising global commodity prices in 2007 led to rising portfolio risk in many countries and in the region as a whole. According to FINDESA’s Gabriel Solorzano, “Some companies that have decided to continue growing have loosened credit standards, and thus have seen increased arrears.” By region, South American MFIs saw the largest increases in delinquency, with PAR > 30 days increasing by over 30%. Peru and Colombia led the continent, fuelling worries about over-indebtedness from saturation in both markets. In Mexico, Central America and the Caribbean, portfolio risk increased by closer to 10% in each, though all remained riskier than South America on the whole. Despite these challenges, the MFIs with the lowest portfolio risk in the region fought off the regional upswing in delinquency thanks to their high quality lending practices. In several cases, high asset quality impacted the MFI’s effi ciency and profi tability. Four institutions with low portfolio risk ranked among the region’s most efficient as they spent fewer resources chasing bad debt. Several Mexican institutions moved into top positions in 2007 for their asset quality, while simultaneously fi nishing the year among Latin America’s most profi table. ProMujer Peru stood out among all entrants, placing in the top 20 in all three categories.
While margins generally fell across the region in 2007, microfi nance was a highly lucrative endeavor for Latin America’s most profi table institutions. Even though a few perennial performers like CompartamosBanco and Brazil’s CrediAmigo remained near the top, the vast majority of the MFIs on this year’s list appear for the fi rst time. Some ranked highly due to improvements in institutional performance. Nicaragua’s Fundación José Nieborowski and Brazil’s CEAPE Maranhão dramatically increased margins to finish in the top 10 by cutting operating costs and portfolio risk. Others, such as Friendship Bridge in Guatemala and EDPYME Efectiva in Peru ranked among the region’s most effi cient. In some cases, the region’s most profitable MFIs operated in underserved, extremely localized markets where institutions could increase margins and increase growth by charging higher interest rates rather than improving effi ciencies. This was particularly common in Mexico, where MFIs took all seven of the top positions, each with return on assets above 15%. Of the seven, only Financiera CONSER placed in the effi ciency rankings. However, the spread between results within Mexico shrank compared to previous years, showing early signs of the infl uence of increasing competitive forces in the market. Even CompartamosBanco saw its margins reduced (slightly) for the fi rst time in years in the face of competition from up-and-comers like Conserva and emerging consumer giants like Banco zteca and Banco Wal Mart.
Microfi nance in Latin America and the Caribbean will face some of its greatest challenges going forward. Record high commodity prices may have a direct impact on the ability of many low-income borrowers to repay loans. In addition, unfavorable public policy in some countries may undermine their microfinance sector’s performance, while the increasing availability of easy consumer credit (and the accompanying risk of over-indebtedness) in others will test the balance sheets and bottom lines of many institutions. While there may be bumps in the road ahead, well-managed and diversifi ed microfinance institutions working to provide financial services to the poor will find that there is still room for growth and sustainability in some of the world’s most dynamic markets. MIX and MicroEnterprise Americas would like to thank all participating institutions for sharing their financial and outreach information and advancing transparency in the region.
Methodological Note: All data are presented in USD for the year ending December 31, 2007, and must be of sufficient quality and detail to stand up to critical scrutiny. 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 20 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 defines a microfinance institution as one with an average size of financial products less than 250% of average individual income levels (GNI per capita) in the country where it is based. For purposes of comparison, only institutions reporting more than 5,000 clients were considered for this survey. 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. For more information on the definitions and methods used, go to www.mixmbb.org.
MIX Credit Type Definitions: Microenterprise: Given to persons or enterprises to finance the production or trade of goods and services; usually directly to micro- and small enterprises. Consumer: Given to persons to finance the purchase of consumer goods and services that have no commercial or enterprise purposes, including home improvement, health and education loans. Acknowledgments: The authors would like to thank Charles Cordier (MIX), Carolina Vidal (MIX), Blaine Stephens (MIX) and Ángel Salgado (REDCAMIF ) for their contributions to expanding this year’s MFI coverage. Many thanks also to the following organizations that provided valuable assistance in facilitating the collection of data for this article: ACCION, ASOFIN, COPEME, FINCA International, Opportunity International, ProDesarrollo, ProMujer, REDCAMIF, and RFR. The following experts provided valuable information for this analysis: Gabriel Solorzano (Findesa), David Torres (Caja Popular Mexicana), Julio Herbas (BancoSol), Naldi Delgado (ProMujer Peru), Diego Fernandez Concha (PRISMA), Leonor Melo de Velasco (FMM Popayán), Francisco Moreno (Fundación Espoir), Santa de Euceda (ODEF OPDF), Jose Guillén (COAC San Jose), Fernando Álvarez Toca (CompartamosBanco), and Ricardo Suxo (Diaconia ).