drift in global microfinance industry - an empirical study

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Dr. K. Chitra & S. Sangeetha

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  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 40

    AbstractThe growth and performance of microfinance sector in global perspective during the recent years has shown distinctive differences among regions. With a view to capture the direction of movement of the sector among the regions, a comparative analysis of the performance of the sector in regions like Africa, East Asia & Pacific, Eastern Europe, Central Asia, Latin America, Caribbean, Middle East & North Africa and South Asia is attempted in this paper. It focuses on loan loss rate, Portfolio at risk, cost factor, yield on gross portfolio, return on assets and equity among varied countries. Mix Market Data for the period 2003-2010 has been the source for this analysis.

    KeywordsLoan Loss, Microfinance, Operating Expenses, Portfolio at Risk; JEL: B26; G21; G23; G32; N20; N25; N26; N27

    AbbreviationsEast Asia & Pacific (EAP), Eastern Europe & Central Asia (EECA), Latin America & the Caribbean (LAC), Micro Finance Institutions (MFI), Middle East & North Africa (MENA), Portfolio at Risk (PaR), Return on Assets (RoA), Return of Equity (RoE), South Asia (SA)

    I. INTRODUCTION

    HE economist Intelligence Unit had brought an edition of Global Microscope on the MFI sector for the year 2011. The study covered 55 countries. The countries

    had been ranked on the basis of various revised parameters which were like overall microfinance business environment, Regulatory framework and practices, Supporting institutional framework and stability. The study findings concluded that in the aftermath of the global financial crisis, microfinance has begun to enter a more mature and sustainable growth phase [James Clark, 2011]. After years of rapid expansion, the focus has turned to accelerating the improvements already underway in corporate governance, regulatory capacity and risk management. Further, risk management, which has become a post-crisis priority for all financial institutions, has improved considerably in the microfinance sector, which is essential, given that it is offering an increasingly diversified range of innovative financial services to the poor. Efforts to strengthen the sector have been stabilized, beside new opportunities; microfinance is well positioned to take further advantage of technological and market innovations and to build on improvements already underway. This progress stands in contrast to the financial crisis period and its aftermath, which had a dampening impact on the sector by exposing structural weaknesses, leading to a deterioration in the quality of some loan portfolios.

    Troubling events over the past year highlight the industrys need to respond to new challenges and changing local conditions. While microfinance continues to shift from a niche product to a globally recognized form of finance, regulatory and market gaps continue to impede the industrys ability to realize its potential. Data collection and transparency have improved markedly from the early days of microfinance, spurred by the notable efforts of microfinance ratings agencies and organizations, such as the MIX Market and Microfinance Transparency. But the varied product offerings and market conditions globally imply a continuing need for policymakers to adopt a more systematic and robust way of evaluating the sectors development, while remaining attuned to the nuances of local markets [Venugopalan Puhazhendhi, 2012]. Similar to earlier performance, Peru was ranked first as the country with highest score followed by Bolivia and Pakistan. India and Ghana which were in top 10 lists had an exit (Table 1). On the other end Uganda, Mexico & Panama have made an entry to the top list. Under the overall business category, Bangladesh the land of microfinance origin had been in 43rd rank and Vietnam finds the last place.

    This paper focuses on understanding the relative global performance of Indian MFIs and intends to learn the varied cost incurred by the MFIs, the Loan loss rate incurred by them and also traces out the reasons for such losses.

    T

    *Director, Department of Management Studies, Sri Ramakrishna Engineering College, Coimbatore, Tamilnadu, INDIA. E-Mail: [email protected]

    **Corresponding Author, Assistant Professor, KCT Business School, Saravanampatti, Coimbatore, Tamilnadu, INDIA. E-Mail: [email protected]

    Dr. K. Chitra* & S. Sangeetha**

    Drift in Global Microfinance Industry -

    An Empirical Study

  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 41

    II. REVIEWS OF LITERATURE

    Ayi Gavriel Ayayi (2012) in his paper credit risk assessment in the microfinance industry with reference to Vietnamese microfinance institutions has discussed about the assessing risk through conventional and specialised evaluation metrics. The study identified that microfinance institutions could sustain financial sound and good corporate governance through the execution of risk management tools. It also stated that the microfinance institutions invariably adopt the same risk management techniques [Ayi Gavriel Ayayi, 2011; Padma et al., 2012]. The researcher has used econometric analysis to assess the credit risk. This study helps to understand the importance of assessing credit risk and enhances on the tools to adopt for assessing the credit risk.

    Milford Bateman & Dean Sinkovic (2009): This paper focuses on the negative impact of the neo liberal policy on Croatia. It also speaks about the Grameen bank model in promoting the standard of living in poor countries. But this model has proved good; today it is facing a threat, which demands for revision in development policy. In Croatia, the micro finance institutions have seen an extraordinary growth from 1999 upto 2006 [Maitreyee Gaikwad, 2006]. The firm and household loans had excessive demand during the study period. But it also describes the repayment tactics followed by the companies are very aggressive during the last few years of the study period, which made the poor to be even poor. The neoliberal capitalism was dead and the one of the consequence was microfinance. Hence this paper helped in understanding the change in policies and in its negative ill effects on micro funding.

    K.O. Osotimehin, et al., (2011) in their study focused on identifying the determinants of the outreach capabilities and trends of microfinance institutions in Microfinance in south western Nigeria. The econometric analysis has been performed to understand the trend of outreach of microfinance institutions. The model specifies that the depository microfinance institutions exhibit 2 stage production process, first FOP for mobilising savings and secondly for institutions production process. The results of the has shown that there had been increase in the outreach of microfinance institutions in South western Nigeria which has been driven by factors like effective lending rates, cost of loans disbursed, average loan size and staff salary. The researcher has found there is an existence of negative correlation between real effective lending rates and outreach, because higher lending rates will discourage borrowings and have led to lower outreach.

    III. OBJECTIVES AND METHODOLOGY

    The study aimed to explore on the following aspects: To analyze the relative performance of Indian MFIs

    in Global perspective. To analyse the loan loss rate among varied

    countries.

    To analyze the yield on gross portfolio, the return on assets and equity among varied countries.

    To analyze the operating, administrative cost incurred in managing the loan portfolio and average borrower among varied countries.

    The study will enlighten on the trends in the global MFI industry. The study assumes to be descriptive which explores the trends of Global MFI industry. Secondary data has been collected and comparative and trend analysis has been carried out for analyzing the performance among varied regions. Data of microfinance belonging to varied countries for a span of 9 years (ie. 2003-2011) had been used for analysis.

    IV. DISCUSSIONS

    Table 1 Ranking of Top 10 Countries in Microfinance in 2011 Rank Country Score

    1. Peru 67.8

    2. Bolivia 64.7

    3. Pakistan 62.8

    4. Kenya 60.3

    5. El Salvador 58.8

    6. Philippines 58.5

    7. Colombia 56.0

    8. Ecuador 55.1

    9. Uganda 53.7

    10. Mexico & Panama 53.6

    The relative performance of Indian MFIs in the global context has shown greater downfall during the last three years which needs to be taken serious note while discussing the issues on future perspectives.

    Table 2 Relative Performance of Indian MFIs in Global Perspective

    Particulars 2009 2010 2011

    Score Rank Score Rank Score Rank

    Overall MF business Environment

    62.1 4 59.1 8 43.1 27

    Regulatory frame work and Practices

    62.5 13 62.5 14 50.0 22

    Institutional Development / Supporting framework

    66.7 3 58.3 7 40.0 20

    Investment Climate

    51.9 14 53.9 14 - -

    Stability - - - - 62.5 40 Source: Global microspore on the microfinance business environment 2009-2011, Economic Intelligence unit Ltd (www.eiu.com)

    Pakistan, Philippines and Uganda shares first place in the regulatory framework and practices. Trinidad and Tobago had occupied the bottom of the list. Bolivia and Peru shares first rank in Supporting Institutional framework followed by Columbia and Armenia. Costa Rica has topped in the stability

  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 42

    factor followed by Uruguay and Chile countries. As like in the overall business category, in supporting Institutional Framework, Vietnam has occupied the back seat.

    Peru has been rated number one for the consecutive three years. It had an excellent record of legal framework, sophisticated regulators and government commitment which purely focused on making unbanked bankable. Bolivia in second place had better price transparency and disclosure rules. Pakistan in the third place had separate legal framework for microfinance banks and good networking. The Kyrgyz Republic has stepped down from 12th position to 21st rank globally. This is due to change in political regime which halted regulatory overhaul. Latin America and the Caribbean have the largest number of top performing countries in the Global Microscope. The regions have eight of the countries in the top global 12 countries. In addition the first two places are occupied by its countries Peru and Bolivia respectively. This had been possible as they very strong supporting institutional framework category. But Latin American countries are not very strong in regulatory framework and practices inspite of eight countries are in the top list.

    Arab countries had faced political unrest earlier this year which seriously handicapped the functioning of the Microfinance industry. Yemen is one of the most affected countries which moved from best to worst category. It stepped down from 27th rank to 44th place. This instability has caused many MFIs to reduce their scale of operations. This landed up in closure of banks too. Kenya is one of the strongest and most stable countries in this region. Kenya is placed in the fourth place and Uganda in the ninth place in the global list. But Uganda places itself in the first place globally in the regulatory framework and practices category. Clients are benefitted with the active microfinance markets.

    India has been pushed to 27th rank with a score of 43.1 in the overall microfinance business environment. It possesses 22nd rank in regulatory framework and practices, 20th place in supporting institutional framework and 40th rank in terms of stability. The Government of India had strongly promoted the Self-Help Group model through the National Rural

    Livelihood Mission by offering cheap funding and also to restrict market-based lending. A perception prevails that the rapid growth had slow down by the local politicians ability to use rural credit more.

    In a study carried out by Microrate MIV survey 2011 [Luis A. Viada, 2011], Latin America and the Caribbean (LAC) and Europe and Central Asia continue to account for the majority of microfinance investments receiving a combined total of 73% of all microfinance investment in 2010. JP Morgans CGAP Global Equity Valuation Survey 2012 has reported that LAC has more than half the investment followed by Asia [Global Microfinance Equity Valuation Survey, 2012]. India is the major contributor with more than 92% of Asians investment levels.

    The Gross Loan Portfolio

    The gross loan portfolio is very high in Latin America & Caribbean (28,66,309). MENA ranks second with loan portfolio of 23,02,788. Africa had less gross loan Portfolio comparatively with other 5 regions, during 2003. But this trend had found to be changing in the next year, where it (Africa-9,01,087) could perform better than South Asia (8,16,720).

    Table 3 Gross Loan Portfolio

    Year Gross Loan Portfolio

    LAC MENA Market Leadership Position

    2003 2866309 2302788 LAC 2004 3290834 3319529

    MENA 2005 3325504 4257163

    2006 4076073 3958660

    LAC

    2007 4730981 4201610 2008 4717270 3523469 2009 6109115 4234538 2010 8094382 5489360 2011 128007902 16294574

    The growth of Gross loan portfolio of LAC had increased by 12,51,41,593 between the years 2003-11. The gross loan portfolio to total assets had been 84.58% than the previous year (2010).

    Table 4 Gross Loan Portfolio / Total Assets (%)

    Year

    Gross Loan Portfolio / Total Assets (%)

    Africa East Asia &

    Pacific (EAP)

    Eastern Europe &

    Central Asia (EECA)

    Latin America & the

    Caribbean (LAC)

    Middle East & North

    Africa (MENA)

    South Asia

    (SA)

    2003 64.65 71.97 82.61 78.28 71.69 74.41

    2004 67.17 72.25 85.00 79.90 67.06 77.32

    2005 64.07 72.19 84.01 79.77 74.98 76.22 2006 63.78 74.58 86.82 80.15 79.05 78.62

    2007 62.05 73.53 87.30 80.97 76.85 78.03

    2008 65.73 75.93 87.56 80.45 75.21 77.23 2009 63.97 72.88 81.70 79.39 76.75 77.34

    2010 65.22 74.60 84.24 81.13 79.29 82.01

    2011 72.08 102.76 76.14 84.58 80.57 - Though the industry seems to have growth in Gross Loan

    Portfolio/ Total Assets invariably for all the countries during 2011, the trend from 2003-11 is fluctuating. Except Eastern

    Europe & Central Asia, Latin America and the Caribbean all other countries had a dip during 2007. But Latin America and the Caribbean had experienced a light fall in the subsequent

  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 43

    year 2008 while regions like Africa, East Asia & pacific and Eastern Europe & Central Asia were incrementally growing. During the year 2011 a significant data of Eastern Asia & Pacific makes the world to observe them, as it had 102.76% from 74.6% comparatively with other regions.

    The borrowings have reduced by 5.48% from 3,35,59,161 to 3,17,21,406 in Bhutan during 2009 & 2010. The number of MFIs count decreased from 100 to 94 in India and found to be common scenario in all other countries except Pakistan.

    Portfolio at Risk (90 days)

    For the country like India PaR has reduced considerably to 0.13% during 2007. Thereafter it seems to be inconsistent; it is hiking year after year. During 2010 the PaR had been 0.64% from 0.16% the previous year. This sort of hike in PaR has not been experienced by this industry earlier. It is also evident that Bhutan being the leader the depositors, the loans outstanding will be naturally high and the PaR seems to be very high comparatively with other nations ie 11.7%. But the land of microfinance origin is under promising side where their PaR has come down to 4.47 % (2010) from 5.34%

    previous year. It is also noticeable that Nepal has the lowest PaR with 0.63% (2010). The PaR weighted average 30 days of India had been very alarming with 24.86% amounting to Rs.3, 42, 76,696 loans outstanding out of gross loan portfolio of Rs. 5,25,11,14,052.

    The active borrowers in India (2010) is 3,17,09,335, while in Bhutan it is just 24, 476. The deposit sum during the year 2010 for India had been Rs. 30,07,60,871, whereas in Bangladesh it is Rs. 2,17,12,20,435 which tops among all the 7 nations. The deposit sum is just Rs. 3,26,45,020 for Bhutan whereas Srilanka has considerable deposits of Rs. 49,41,30,770 which is higher than India, inspite Srilanka comparatively having less active borrowers (13,34,744).

    The gross loan portfolio of India is considerably increasing from the year 2006-10. ie. (46,15,10,391 to 5,25,11,14,052). Though Bhutans entry was from 2008, it also has tasted the growth in its gross loan portfolio ((5,14,66,128 to 7,93,89,045 (2010)). The number of depositors in India has increased in a large way. But it has experienced an exponential increase during the 2010 (65,01,658) while considering the previous year (20,36,591).

    Table 5 Loan Loss Rate

    Year

    Loan Loss Rate

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 0.34 0.45 0.27 0.85 0.04 0.0 2004 0.54 0.13 0.07 0.65 0.06 0.0

    2005 1.11 0.07 0.00 0.62 0.06 0.0

    2006 0.50 0.00 0.04 0.56 0.07 0.0 2007 0.40 0.04 0.00 0.58 0.21 0.0

    2008 0.31 0.07 0.00 0.95 0.02 0.0

    2009 0.23 0.06 0.06 1.05 0.03 0.0 2010 0.26 0.33 0.19 1.19 0.02 0.0

    2011 0.31 0.41 - 1.83 6.38 0.0

    The loan loss rate is found to be very high in MENA than other regions which accounts to 6.38% of the loan portfolio during the year 2011. Inspite of having large loan portfolio LAC has only 1.83 % extent of loan loss rate which promotes additional portfolio growth.

    Table 6 Operating Expenses / Loan Portfolio

    Year

    Operating Expenses / Loan Portfolio (%)

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 26.85 29.44 20.67 22.85 21.41 15.60 2004 27.73 21.76 18.11 22.88 23.80 15.44

    2005 30.39 23.90 16.73 22.14 22.26 13.99

    2006 30.81 23.28 17.19 20.48 20.93 13.30 2007 31.32 19.96 14.89 19.02 19.42 13.88

    2008 31.45 20.35 14.30 22.23 20.40 13.84

    2009 29.99 20.04 14.89 19.76 20.33 14.19 2010 31.42 18.97 16.10 21.42 20.27 14.06

    2011 59.40 22.71 01.34 14.09 19.67 -

  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 44

    Table 7 Operating Expenses / Total Assets (%)

    Year

    Operating Expenses / Total Assets (%)

    Africa East Asia & Pacific

    Portfolio Operating Expenses

    / Loan Portfolio (%)

    Gross Loan Portfolio /

    Total Assets Portfolio

    Operating Expenses /

    Loan Portfolio (%)

    Gross Loan Portfolio

    / Total Assets

    2003 646614 26.85 15.31 965457 29.44 20.69 2004 901087 27.73 16.12 1124755 21.76 15.63 2005 869392 30.39 17.79 1325123 23.90 16.74 2006 937462 30.81 16.60 1520924 23.28 16.16 2007 1578846 31.32 17.23 1767032 19.96 13.99 2008 1955964 31.45 18.77 1948487 20.35 14.51 2009 2463203 29.99 18.33 3673460 20.04 14.40 2010 2929689 31.42 18.68 4418928 18.97 14.63 2011 1754993 59.40 28.03 36128828 22.71 23.99

    The operational expenses / portfolio had been comparatively very high for EAP (19.64%), though it has slightly decreased from the previous year. East Asia & pacific had very high gross loan portfolio/ total assets during the year 2010. But the operational expense/ portfolio was surprisingly low during 2010 for that region. But the very next year the operational expenses / portfolio & operational expenses had been very high, as the portfolio size had a larger hike by 8.18 times.

    The African region is facing upside down situations where the portfolio size has declined (2011), but the operating expenses have nearly the double the times with reference to the previous years. The EECA had an effective control over its operating expenses. It could manage its portfolio with just 1.34%, though the portfolio has expanded by 13.8 times.

    Table 8 Yield on Gross Portfolio (Real)

    Year

    Yield on Gross Portfolio (Real) (%)

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 20.96 36.71 30.90 26.07 31.55 20.60 2004 25.18 28.12 26.48 27.42 31.54 15.49 2005 19.76 28.50 22.09 25.75 25.98 13.83 2006 19.61 23.35 21.22 25.11 23.54 15.04 2007 21.73 24.57 17.92 25.30 21.62 13.89 2008 16.41 19.13 15.20 21.80 15.29 10.46 2009 22.10 26.19 21.23 25.21 27.40 14.73 2010 22.56 24.05 22.67 24.83 22.28 13.34 2011 - - 18.55 - - -

    It is notable that all the regions have experienced a downfall during the year 2009, largely due to the impact of economic slowdown. Thereafter the scenario has improved the very next year (2010) to a large extent. LAC tops in the yield on gross loan portfolio comparatively with 24.83% (2010). It is closely followed by regions like EECA, Africa & MENA. But EECA had experienced a dip in yield during the year 2011.

    Table 9 Return on Assets (Median) (%)

    Year

    Return on Assets (Median) (%)

    Africa East Asia &

    Pacific

    Eastern Europe &

    Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 -0.53 3.31 3.60 3.70 2.06 0.68 2004 0.76 3.03 3.50 3.61 3.49 0.83 2005 0.44 2.59 3.19 3.20 2.96 1.25 2006 0.55 3.12 3.29 3.22 3.65 0.87 2007 0.74 2.76 3.20 2.92 4.22 0.77 2008 1.06 2.85 2.83 2.24 3.13 1.00 2009 0.35 2.19 1.34 1.46 4.09 1.11 2010 0.81 2.83 2.34 1.60 4.69 1.47 2011 7.08 8.93 4.60 1.87 6.44 -

    The Return on Assets (RoA) of African region have shown as tremendous improvement from -0.53% (2003) to 7.08% (2011), inspite of large fluctuation during the course of time. Similarly East Asia and Pacific have improved and tops in RoA with 8.93% during the year 2011. Though LAC has higher gross loan portfolio, it has picked a very low RoA comparatively to an extent of 1.87% (2011) though it has improved from the previous year. The RoA of LAC had not been attractive with respect to the portfolio size it holds.

  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 45

    Table 10 Return on Equity (Median)

    Year

    Return on Equity (Median) (%)

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 0.23 10.06 9.82 12.62 2.38 4.90 2004 2.95 15.64 10.43 12.62 4.87 6.63 2005 2.12 12.82 18.65 11.61 10.00 7.45 2006 1.76 16.07 20.77 12.36 18.01 6.25 2007 3.50 14.27 16.51 11.66 19.56 7.32 2008 6.68 13.42 14.64 8.82 6.27 8.84 2009 3.86 11.22 3.80 6.26 10.62 10.36 2010 4.55 11.98 7.85 6.94 8.23 9.61 2011 -10.6 42.55 22.97 12.14 9.40 -

    Profit Margin

    2010 4.46 15.48 13.54 8.59 23.61 - 2011 26.85 27.66 25.26 12.83 17.83 -

    Though the return on assets (RoA) was very promising for African region RoE had found to be negative. But EAP, EECA regions had good ROE of 42.55% & 22.97% which has exponentially grown from 11.98% & 7.85% respectively for the years 2010 & 11. LAC has also enjoyed increase in RoE from 6.94% to 12.14% for the years 2010 & 11.

    Profit Margin

    The profit margin had improved in a larger way to all regions except MENA which had steeply declined from 23.61% to 17.83% during the years 2010 & 11.

    Table 11 Number of Loans Outstanding

    Year

    Number of Loans Outstanding

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America &

    the Caribbean

    Middle East &

    North Africa South Asia

    2003 924394 752436 275513 1825806 410301 6727748 2004 1751191 1056165 367794 4306171 593236 9614728 2005 2575013 1544024 1160416 6539412 885741 20834249 2006 4080546 7026395 1748260 10088166 1586393 27011352 2007 5548788 8757888 2487778 13121763 2292119 35561112 2008 7114175 11174803 3170175 14362030 2521780 44002404 2009 6291261 14123042 2815314 15886925 2504037 54604003 2010 5035715 16257342 2868191 16989423 2245047 61040324 2011 33867 632317 290892 30525592 28450 -

    The loans outstanding had been found to be very high for South Asia which had been consistently growing over the years. Africa & MENA regions have tactically reduced their loans outstanding. The noticeable fact is that MENA have reduced outstanding loans with less operating expenses.

    Table 12 Number of MFIs

    Year

    Number of MFIs

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 183 95 157 166 31 132 2004 183 119 189 218 38 197 2005 241 131 237 280 42 214 2006 255 159 256 304 49 207 2007 284 183 323 370 59 196 2008 280 182 314 392 68 222 2009 266 149 255 386 70 219 2010 196 123 213 369 64 208 2011 6 3 4 40 2 -

    The number of MFIs has gone up for LAC, MENA & SA regions, while in other regions, it is observed to have larger winding up of MFIs from 2007 onwards. This is crucial to understand, as the globe was experiencing recession during the same session. But even the LAC, MENA & SA regions had tasted the bitter of closing down MFIs 2009 onwards.

  • The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 1, No. 2, May-June 2013

    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 46

    Table 13 Average Loan / Borrower

    Year

    Average Loan / Borrower

    Africa East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 205 200 1091 514 270 72 2004 170 156 1315 609 267 76 2005 174 204 1083 641 248 92 2006 216 245 1693 659 259 107 2007 249 288 2222 746 321 138 2008 302 317 2002 838 388 124 2009 378 312 1788 917 463 141 2010 363 305 1691 1050 611 142 2011 269 123 1571 2629 1151 -

    The average loan/ borrower had been reduced from 2009 onwards in Africa, EAP and EECA regions. Inversely LAC, MENA & SA have increased the average loan / borrower in their regions during the same period. LAC has doubled the average loan/ borrower between 2010 & 11; whereas the EAP has reduced by half during the same period.

    Table 14 Administrative Expenses / Total Assets

    Year

    Administrative Expenses / Total Assets

    Africa East Asia &

    Pacific

    Eastern Europe &

    Central Asia

    Latin America & the

    Caribbean

    Middle East &

    North Africa South Asia

    2003 6.29 8.82 8.23 7.14 5.55 5.12 2004 7.73 7.37 7.10 7.59 5.97 5.32 2005 8.10 8.72 6.01 7.00 6.42 3.79 2006 8.42 8.34 5.84 7.48 5.30 4.23 2007 9.67 6.39 5.21 7.14 4.98 4.12 2008 10.67 6.74 4.99 7.42 4.88 3.99 2009 10.60 6.30 4.91 6.79 5.01 3.97 2010 9.53 6.20 4.94 7.20 5.30 3.85 2011 13.40 8.51 0.88 4.71 5.91 -

    It is understood that EECA and LAC has taken measures to curtail the administrative expenses significantly inspite of increase in portfolio size. The administrative expenses have drastically increased in African, EAP regions and have incrementally increased in MENA during 2011.

    Table 15 Number of Depositors (Sum)

    Year

    Number of Depositors (Sum)

    Africa

    East Asia &

    Pacific

    Eastern Europe

    & Central Asia

    Latin America &

    the Caribbean

    Middle East &

    North Africa South Asia

    2003 44,48,059 13,04,673 8,90,716 9,43,675 6,886 1,34,03,380 2004 57,05,409 15,42,817 11,86,099 32,10,057 5,539 1,59,41,327 2005 75,54,102 20,97,382 15,87,235 63,50,983 13,589 1,91,36,200 2006 91,91,585 65,93,152 27,14,996 76,40,896 87,664 2,64,38,711 2007 1,16,96,536 32,55,613 39,11,986 97,10,388 81,397 3,01,71,105 2008 1,71,37,730 46,14,980 52,44,592 1,35,64,741 97,489 3,20,18,765 2009 2,05,72,668 48,99,512 27,99,959 1,71,68,351 63,748 3,23,06,744 2010 1,70,60,833 58,30,700 28,32,014 1,54,49,440 89,552 2,67,69,982 2011 57,975 6,34,999 10,114 41,19,481 0 0

    The number of depositors (sum) statistics shows an alarming picture throughout the world invariably. There had been huge decline in the number of Depositors (sum).

    Table 16 Deposit (Sum)

    Year

    Deposit (Sum)

    Africa East Asia and

    the Pacific

    Eastern Europe

    and Central Asia

    Latin America and

    The Caribbean

    Middle East and

    North Africa South Asia

    2003 26,06,07,065 3,30,75,49,344 13,10,88,591 75,74,81,525 69,147 17,35,93,793 2004 52,05,64,877 10,57,19,602 3,53,98,226 2,21,84,87,228 1,72,475 22,38,44,342 2005 85,97,01,224 3,96,67,65,831 1,24,80,03,627 5,04,44,25,869 2,48,514 65,95,07,361 2006 1,34,28,72,904 5,34,71,92,014 2,24,06,02,281 6,79,95,66,116 12,51,398 89,78,61,876 2007 3,25,76,11,106 6,01,01,40,130 5,04,03,90,748 8,71,83,52,564 6,29,38,252 1,18,93,12,415 2008 4,00,24,07,301 6,15,99,25,668 6,16,45,05,179 10,00,99,71,646 7,50,47,789 1,99,85,11,287 2009 5,28,21,32,767 8,44,20,68,436 5,23,56,99,452 13,35,25,83,689 11,88,54,318 2,54,50,11,110 2010 4,88,27,93,790 11,77,51,31,989 6,42,28,31,882 15,26,39,26,637 12,19,64,001 3,29,98,39,062 2011 94,20,885 3,64,35,971 2,80,64,933 7,25,14,12,544 0 0

    As like the number of depositors, the Deposit sum also has declined unusually during 2011 than ever from 2003 onwards.

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    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 47

    Table 17 Number of Deposit Accounts (Sum)

    Year

    Number of Deposit Accounts (Sum)

    Africa East Asia and

    the Pacific

    Eastern Europe and

    Central Asia

    Latin America & The

    Caribbean

    Middle East and

    North Africa South Asia

    2003 17,26,637 6,95,896 91,284 7,11,282 6,886 73,41,485 2004 23,22,956 10,60,147 68,487 32,17,151 754 85,63,272 2005 51,06,264 16,77,336 16,71,455 66,61,154 12,752 1,86,66,384 2006 72,73,651 63,56,632 26,64,091 83,05,769 59,940 2,55,56,618 2007 1,13,26,263 33,14,652 39,25,301 1,02,16,212 81,973 2,24,92,769 2008 1,73,55,114 47,10,330 53,61,769 1,53,18,807 1,03,735 3,37,75,156 2009 1,94,56,799 52,68,279 54,65,615 1,92,76,038 75,749 3,47,82,370 2010 1,84,71,894 67,48,727 59,62,453 1,89,50,966 89,552 3,11,31,807 2011 62,017 7,55,281 11,307 45,04,558 0 0

    Large number of deposit accounts has been closed during the year 2011 in all the economies. But it has started earlier during the year 2010 itself for economies like Africa, LAC and SA.

    Table 18 Number of Active Borrowers

    Year

    Number of Active Borrowers

    Africa East Asia and the

    Pacific

    Eastern Europe

    and Central Asia

    Latin America and

    The Caribbean

    Middle East and

    North Africa South Asia

    2003 24,96,988 44,93,322 6,90,076 34,64,294 5,07,120 1,35,12,280 2004 33,24,066 54,08,477 9,72,016 47,42,094 8,03,425 1,78,82,185 2005 42,81,183 94,68,511 12,89,100 78,05,509 12,41,019 2,43,83,439 2006 52,79,867 1,07,25,120 18,45,936 94,43,992 17,36,626 2,99,60,927 2007 61,87,181 87,83,244 24,47,050 1,20,53,183 22,55,182 3,63,93,712 2008 70,99,295 1,54,56,165 30,62,732 1,30,58,610 24,84,605 4,24,61,106 2009 82,08,512 1,39,11,940 27,87,687 1,43,05,288 25,00,362 4,99,96,298 2010 51,22,529 1,57,94,001 27,73,436 1,57,24,890 22,15,603 5,85,94,977 2011 33,867 6,29,458 2,87,611 40,29,773 28,450 0

    The decline in active borrowers has reflected in reduction in deposit too. Though LAC (2011) is comparatively good than other regions, when compared with the yester years it had experienced a steep fall in its accounts.

    Table 19 Cost per Borrower

    Year

    Cost per Borrower

    Africa East Asia and

    the Pacific

    Eastern Europe

    and Central Asia

    Latin America and

    The Caribbean

    Middle East and

    North Africa South Asia

    2003 65 43 204 124 58 11 2004 71 36 214 120 68 12 2005 68 42 209 144 63 11 2006 77 51 229 146 68 12 2007 96 58 286 146 62 16 2008 129 66 320 177 69 17 2009 145 63 259 175 86 18 2010 148 61 268 199 128 19 2011 87 26 - 357 141 0

    Table 20 Cost per Loan

    Year

    Cost per Loan (Median)

    Africa East Asia and

    the Pacific

    Eastern Europe

    and Central Asia

    Latin America and

    The Caribbean

    Middle East and

    North Africa South Asia

    2004 71 32 177 137 67 20 2005 77 37 177 126 62 18 2006 87 57 226 132 60 12 2007 100 65 285 140 63 15 2008 127 68 288 164 69 16 2009 132 61 240 169 84 18 2010 132 61 257 189 99 18 2011 0 26 0 339 144 0

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    ISSN: 2321 242X 2013 | Published by The Standard International Journals (The SIJ) 48

    The cost per borrower and cost per loan has inflated twice for LAC during 2011, thrice while comparing it from 2003. MENA also has experienced the inflation in maintaining a borrower. But African and AEP regions have felt a dip due to large decline in their active borrowers. The cost per loan has multiplied 1.5 times for MENA regions. The EAP has declined during 2011 more than half the cost.

    V. CONCLUSION The global scenario is not promising for the MFI industry as such. Though some economies had booked portfolio, it is found that they are struggling hard to manage their expenses. State of the Microcredit Summit Campaign Report 2012 had said that number of initiatives like values of responsibility, corporate ethics and social performance management have emerged to address the field challenges. MFIs have to adopt new strategies to bring back their customers and as well reduce their operating and administrative expenses.

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    [3] K.O. Osotimehin, Charles.A Jegede & Babatunde Hamed Akinlabi (2011), Determinants of Microfinance Outreach in South-Western Nigeria: An Empirical Analysis, Interdisciplinary Journal of Contemporary Research in Business, Vol. 3, No 8, Pp. 780797.

    [4] Xavier Reille & Daniel Rozas (2011), Discovering Limits - Global Microfinance Valuation Survey 2011, Global Equity Research, Pp. 3-29.

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    [7] Global Microscope on the Microfinance Business Environment (2011), URL: http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=EIU_Microfinance_Eng_2011_WEB.pdf&mode=wp&campaignid=microscope2011. Pp. 6-73.

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    [12] K.M.S. Padma, A.M. Suresh & L Vijayashree (2012), Micro Finance and its Risk Management Practices in India: A Conceptual Study, Synergy (January, 2012), Vol. X, No. I, Pp. 13-24.

    Dr. K. Chitra is the Director of Department of Management Studies, Sri Ramakrishna Engineering College, Coimbatore. Her research domain is marketing. She has published 25 articles and 3 books. She is a Reviewer for 4 International Journal, Member in Board of studies, Chairperson for Conferences conducted in India and abroad, Interacted with academicians in Singapore,

    Malaysia and Newyork. She is a Member in All India Management Association; Member in education & Industry Institution Interaction, Panel of (CIII); Executive Committee member Coimbatore Management Association (CMA); National Institution of Personnel Management (NIPM); Management Teachers Consortium (MTC).

    S. Sangeetha has 10 years of experience to her credit and specializes in Finance. Currently she is pursuing her doctoral degree in Management at Anna University, Chennai. Her research domain is microfinance. She received Excellent grade in the field study viva voce. She is an alumnus of Indian institute of Management, Kozhikode. She has presented more than 19 empirical papers in

    International and National Level Conferences in reputed institutes like IIMA, IIMB and also has published papers in journals.