Microfinance becoming globally recognized, commercial viability improving, Microscope says

Microfinance is rapidly shifting from a niche product to a globally recognized form of finance, with technology allowing the industry to lend and offer financial services to low-income populations and entrepreneurs around the world, according to the report Global Microscope on the Microfinance Business Environment 2010.

Increasingly both providers and investors consider microfinance commercially viable in developing countries but regulatory and market gaps keep the industry from operating as well as it should, said the report prepared by the Economist Intelligence Unit (EIU).

The Global Microscope 2010 offers an in-depth analysis of the microfinance business environment in 54 countries for a second consecutive year. It is also the fourth yearly index to track conditions in the 21 countries of the Latin American and Caribbean region.

The Multilateral Investment Fund (MIF), a member of the Inter-American Development Bank Group; CAF Development Bank of Latin America and the Netherlands Technical Assistance Trust Fund at the International Finance Corporation (IFC) have provided support for the study.

“Access to diverse financial services is critical to improving livelihoods and welfare of poor and low-income people. Yet much remains to be done in policy environments to advance financial inclusion for individuals and enterprises in a responsible way,” said HRH Princess Maxima of the Netherlands, U.N. Secretary General’s Special Advocate for Inclusive Finance for Development. “The Global Microscope identifies where countries have made improvements, and where not, and where we therefore should focus our efforts going forward.”

The index that underlies this report allows countries and regions to be compared across three broad categories: regulatory framework, institutional development and investment climate. Besides covering 21 Latin American and Caribbean countries, the index also looks into the microfinance business environment in 11 countries from Sub-Saharan Africa, five from South Asia, seven from East Asia, three from the Middle East and North Africa, and seven from Eastern Europe and Central Asia.

As home to the overall best and worst performer in this year’s index, Latin America and the Caribbean has the largest range of scores among the six regions: half of the ten top ranked countries were from the region as well as four of the 10 lowest ranked countries.

Peru, the Philippines, and Bolivia topped the ranking for a second consecutive year. Peru retained its position as the global leader, scoring 74.3 out of 100, similar to last year’s score.

The remaining top 10 nations come from Latin America (Ecuador, El Salvador and Colombia), South and East Asia (India and Pakistan) and Sub-Saharan Africa (Ghana and Kenya). Of the 54 countries included in the 2010 index, 29 improved their scores, 21 fell back, and four were unchanged.

“The Global Microscope supplies investors, lenders and donors with a comprehensive and comparable snapshot of each country’s microfinance sector," said Vanesa Sanchez, project manager for the Microscope at the EIU. "Regulatory frameworks are relatively advanced, but countries still fall short of providing the optimal conditions for microfinance."