Deposit mobilization on rise in LAC microfinance sector: Report

Microfinance Focus, Oct 22, 2010: Microfinance institutions in Latin America and the Caribbean are increasingly relying on deposits as a major source for microfinance. Deposits account for almost 80 percent of portfolio financing for deposit-mobilizing institutions. These findings were reported in the 2010 edition of ‘Microfinance Americas: The Top 100’ released by Microfinance Information Exchange (MIX) and the Multilateral Investment Fund (MIF).

The vast majority of MFIs that focused on mobilizing deposits have increased both the number of active accounts and total account balances. Accordingly, deposits resumed an upward trend in 2009, enjoying 28 percent growth in both number of active accounts and total account balances for the top 20 institutions.

The number of deposit-mobilizing institutions increased from 63 in 2008 to 84 in 2009, with this increase attributable to cooperatives that have been operating for many years in their respective markets, the report says. Banco Caja Social which tops the list of MFIs by deposits held more than 5.7 million deposit accounts with a total deposit of $2.8 billion.

Even in the wake of an international financial crisis, microfinance in Latin America and the Caribbean continues to excel with growing portfolios and acceptable level of arrears. By the end of 2009, the top hundred institutions had accumulated a combined portfolio totalling US$18.948 billion, distributed among more than 15.6 million loans of many different types in 18 of the countries of the LAC region.

As many MFIs reformulate their growth plans, their operating costs increased which ultimately led to a reduction on their returns on assets from 2.9 percent in 2008 to 2.2 percent by the end of 2009. Moreover, despite the increased caution in loan disbursements and the strengthening of loan recovery, portfolios at risk > 30 days continued to increase, from 4.0 percent to 4.9 percent in the same period.

CrediAmigo – Targeted Productive Credit Program operated by Banco do Nordeste do Brasil is ranked as the best MFI in the region by the study. It is the second largest microenterprise lender in the region with the greatest outreach in its specific market, in addition to being an important model for the use of the group lending methodology.

Ecuador’s Fundación para el Desarrollo Integral Espoir is ranked as the second best for effectively applying the community bank methodology, enabling strong portfolio quality (portfolio at risk > 30 days of 1.1 percent) and efficient operations, spreading its per-loan expenditures (US$89) over its entire client base. The rankings were done based on the outreach, efficiency and transparency of microfinance institutions.

In addition, in 2009 the most significant activity was recorded by the largest MFIs. In the group of the top 20 institutions, microenterprise lending activity grew significantly, with increases of 17 percent in loans placed and 30 percent in portfolio.

Mexican Compartamos Banco continues to be the region’s largest microenterprise lender with a Gross Loan Portfolio of more than $488 million and over 1 million outstanding loans. Another MFI from Mexico, Crezkamos Kapital was ranked number one in terms of growth which reported a 451.5% increase in the number of microenterprise loans from last year.

For containing increasing delinquency, MFI is the region have taken few steps including implementation of early warning systems, search of new clients, identification of new employees with backgrounds more in line with microfinance activities and changing staff incentives.

Some MFIs now set incentives as a function of portfolio at risk > 1 day (as opposed to > 30 days), with good results, while others have gone so far as to reduce benefits to employees when loans have to be written off.

Compartamos Banco also reported the highest market penetration rate by reaching out to 7.9% poor population and extending   1,488,897 loans.

The report highlights that among the top 20 microfinance institutions, consumer lending grew by 15 percent, while overall portfolio increased by 24 percent. Similarly, in the top 100 institutions, loans increased by 14 percent and total portfolio by 21 percent, resulting in an average growth in average outstanding balance of 6 percent.

The portfolio quality of MFIs declined compared to the preceding year. 2009 witnessed an increase in portfolio at risk > 30 days throughout the entire region, due primarily to decreased microentrepreneurial economic activity and context-specific developments in certain countries.

At the end of 2008, the top 20 institutions showed a portfolio at risk > 30 days of no more than 1 percent, while for 2009 this figure was in excess of 2 percent. This same one percentage point difference was also seen in the top 100 MFIs, with delinquency reaching as high as 6 percent in 2009 and less than 5 percent in 2008.

Mexican MFIs continued to stand out as attractive options for all types of investors. Alternativa Solidaria Chiapas took the top spot in the ranking for this year. In 2009 its Return of Assets (RoA) was 19.1% and Return on Equity (RoE) was around 34%.

The report claims that although microfinance institutions continued to narrow their margins in 2009 in order to prevent a greater increase in loan delinquency, many were largely able to grow faster than during the preceding year.

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