Friday, May 28, 2010

The Microfinance business environment in 55 countries

This first-ever report from the Economist, looks at the commercial viability and sustainability of microfinance in 55 countries. An objective scoring of the business environment for microfinance is probably correlated with overall environment for low-cost entrepreneurs in each of the 55 countries. In this particularly study, the researchers appear to have covered a very wide set of factors:

  • The institutional and regulatory framework for microfinance: Regulation of microcredit operations; Formation and operations of regulated/supervised specialised MFIs; Formation and operation of non-regulated MFIs; Regulatory and examination capacity

  • The general investment climate: Political stability; Capital market stability; Judicial system; Accounting standards; Governance standards; MFI transparency

  • The level of institutional development: Range of MFI services; Credit bureaus; Level of competition

  • Each of the countries in the study were assigned a score (0=worst to 4=best) for each of the factors above, and a composite (index) score was computed:

    (Click to enlarge)

    Bangladesh, home to Grameen Bank, is smack in the middle of the pack. The report also ranks the countries using scores for Regulatory Framework, Investment Climate, and Institutional Development. Of the the three areas, Institutional Development seems to best capture the sophistication of the financial services infrastructure. Some might find it surprising that Credit Bureaus are starting to take hold in many countries in the developing world, including the top three ranked countries Peru, Bolivia, and the Philippines.

    Many countries in the developing world are full of aspiring entrepreneurs. Microfinance was historically designed to help meet the most basic needs, but nowadays Microfinance institutions are rolling out more sophisticated financial products. I hope the Economist refreshes this study on a regular basis.


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