The Latin American Microfinance Industry: How does it Measure Up?
This document outlines a study by the Microenterprise Unit of the Inter-American Development Bank (IDB) and MicroRate (a private firm that specializes in evaluating microfinance institutions (MFIs)) involving a number of prominent MFIs of Latin America to address information gaps in the microfinance industry.
The study aimed to provide reliable indicative values for multiple benchmarks, relevant to the industry, to:
- Address issues of information availability;
- Facilitate the flow of commercial capital and other technical resources to the microfinance industry.
The document begins with a discussion on the value of benchmark indicators and the drawbacks of comparing institutions, given their varied mission and objectives.
The paper gives a brief overview of:
- The project objectives;
- Selection criteria of participating institutions;
- The framework for analysis;
- The use of comparative numbers from the local commercial banking sector.
It gives detailed explanations of the following benchmark indicators under broad categories:
- Profitability (return on average assets, return on average equity & gross financial margin);
- Capital (debt/equity, equity/gross portfolio);
- Asset quality (loans > 30 days past due, loan loss reserves / loans 30 days past due, write-offs/average gross portfolio);
- Liquidity (cash and marketable securities/total assets, gross portfolio/total assets);
- Efficiency & productivity (operating expenses/average assets, loans per credit officer, operating expenses/average gross portfolio, etc.);
- Growth (assets in US Dollars, gross portfolio in US Dollars, equity in US Dollars, average loan size).
The paper discusses the key findings and relevant information related to the 19 indicators including:
- Adjusted and unadjusted benchmark values;
- Formulae for calculation;
- Interpretation of the figures by using maximum, minimum, mean and median figures.
The paper focuses on the important patterns that have emerged with regard to institutional form, size and life cycle stage, making relevant comparisons with the formal banking sector.
