Global Microscope 2013 microfinance environment report highlights improvements made in mobile banking, increased client-protection activities and credit bureau strength in many countries over the past year.

The global microfinance business environment made noted improvements last year, the Economist Intelligence Unit's 2013 Global Microscope ranking finds. More countries improved their scores than worsened: of the 55 countries included in the 2013 index, 30 improved their overall scores, 19 deteriorated, and 6 were unchanged.

Most of the year's improvements for the microfinance category took place in theSupporting Institutional Framework, while scores benchmarkingRegulatory Framework and Practicesdeclined  overall. Increased client protection activities, the expansion of mobile banking activities and growth of credit bureaus drove improvement, with Bosnia and Herzegovina and Pakistan joining the top performers in this category. However, one-fifth of countries analyzed still do not have functioning credit bureaus.

Latin America and the Caribbean (LAC) led the ranking as a region with the highest overall regional score. Moreover, LAC countries captured half of the slots in the global top ten. Asian countries experienced significant improvements in overall rankings due to changes in their supporting institutional frameworks, driven mainly by improved dispute resolution systems and better credit bureaus, among others. Although the four countries of the Middle East and North Africa (MENA) region showed slight improvements, the region still posted the lowest overall score and the lowest scores in all three categories.

Marking its sixth year at the top of theGlobal Microscoperanking, Peru maintained its number one position by demonstrating a well-equipped regulatory environment, a competitive and innovative market, and leadership in the adoption and enforcement of client-protection measures. The implementation of international financial reporting standards solidified the country's standing as well as the banking regulator's ability to oversee nearly the entire microfinance loan portfolio. A recent law regulating the use of electronic money transfers and similar operations created a new class of transaction services companies that has opened up opportunities to extend financial services on electronic platforms.

Kenya and Uganda were the only Sub-Saharan African countries that made it to the top 10 performers this year. Kenya maintained its 5^th rank but posted a lower overall score in 2013, held back by a lack of oversight of compulsory savings at non-regulated financial institutions. Uganda advanced six ranks making it to 8^th place, tied with El Salvador, thanks to a favorable political and macroeconomic environment for microfinance.

Also this year, Azerbaijan climbed 18 positions in the ranking. Azerbaijan's score increased more than any, climbing by 14 points due to improvements in transparent pricing, dispute resolution, use of credit bureaus and agent-based financial transactions, pushing the country's ranking to 15^th overall from 33^rd last year. Elsewhere, improvements in pricing transparency, agent-based financial transactions and improvements to regulatory capacity in the Dominican Republic bolstered the country into the global top ten this year.

Country highlights:

• The top five countries in theGlobal Microscope 2013ranking are Peru, Bolivia, Pakistan, the Philippines and Kenya.
• New to the top ten are Dominican Republic and Uganda, while Nicaragua broke into top fifteen.
• Improvements in credit bureaus contributed to Cambodia's continued rise. After entering the top ten last year, the country jumped two more spots this year to number six, just behind Kenya.
• India made it to the 16^th place, significantly improving its performance in the ranking. Except for the State of Andhra Pradesh, the country has overcome the effects of the October 2010 microfinance crisis. Indian financial institutions have made significant progress in establishing proper grievance-redress systems.
• Ecuador, Mexico and Kyrgyz Republic all faced challenging environments in 2013.

The 2013 Microscope study examined countries' microfinance sector by considering the regulatory environment and non-regulatory operating conditions and practices in microfinance. The 2013 study used the same set of indicators and methodology implemented in 2011; however, this year the EIU increased consultations with microfinance institutions, networks, regulators, consultants, and investors to gather additional insights from all relevant stakeholders. The study assesses countries across three major categories:

• Regulatory framework and practices
• Supporting institutional framework
• Political stability

As in previous years, the EIU completed interviews and conducted an online survey to incorporate the views of an expanded community of microfinance specialists. Finally, the 2013 Microscope study highlighted the transition the sector is experiencing in its way to achieving financial inclusion as well as the role the private sector will play in expanding the range of financial products and its customer base. 

The Global Microscope 2013 effort is supported by the Multilateral Investment Fund (a member of the Inter-American Development Bank Group), CAF-development bank of Latin America-and  the Center for Financial Inclusion at Accion as well as Citi Microfinance.

The Global Microscope 2013 report and model is available free of charge on the EIU website at: www.eiu.com/microscope2013