Benchmarking Latin American Microfinance 2006

This report examines the performance of Latin American and Caribbean microfinance institutions (MFIs) in 2006, and explores trends in the microfinance sector. The report states that:

• Latin American and Caribbean microfinance continued their rapid growth;
• The regions MFIs increased their median loan portfolios by 50% due to strong demand for financial services from low income clients;
• MFIs attracted record levels of commercial funding, a large portion of which was in the form of voluntary savings from the public;
• Increased operational efficiency and stiff competition allowed MFIs to lower their interest rates;
• MFIs increased returns, reversing a downward trend in profitability;
• This performance was diluted by two interrelated phenomena:
  • Latin American MFIs expanded only moderately in terms of the number of loans and borrowers, resulting in an increase in average loan balance and cost per borrower;
  • Increasing number of loans relative to borrowers signified that more MFIs were making multiple loans to the same borrowers, the result was a rise in average balance per borrower.

The report concludes that:

• Heavy competition will continue to encourage Latin American and Caribbean MFIs to diversify their product mix in search of new growth opportunities;
• The combination of larger, often riskier individual loans, and rising loan balances may lead to higher delinquency, along with problems associated with over-indebtedness;
• Product diversification may cause some MFIs to experience mission drift from their core social principles.