Barometer 2018: must microfinance be profitable?With 139 million clients and a credit portfolio of USD 114 billion in 2017, microfinance has reaffirmed its position as a key tool in the financial inclusion of marginalised populations.
In its 9th edition, the Microfinance Barometer questions the notion of the profitability of microfinance. This is a difficult notion to attribute to a sector whose objective is to have a social impact! Can microfinance be profitable while remaining socially responsible? The microfinance sector needs, however, to be financially sustainable to be able to continue its mission and further develop services across the world. This is why, in this 2018 edition, several expert analyses and interviews with investors, as well as numerous case studies, assert that profitability and social impact are complementary.
Microfinance: significant annual global growth, around 9% on average.
Trang in Vietnam
Lisha Sajiv in India - Marene & Cheickh in Sénégal
Profitability and social performance
Management standards were created in order to make the microfinance sector responsible to its clients and staff. The Universal Standards for Social Performance Management form a series of best management practices adopted in 2012, which include Client Protection Principles and which provide advice to MFIs on how to balance their financial and social performance. By adopting the Universal Standards, MFIs ensure that their management systems - their policies, procedures, training, internal controls - are devised so as to fulfil their social mission.
As Alain Lévy, Head of Microfinance for Americas and Asia - BNP Paribas says, “Profitability is necessary in the sector given that it implies sustainability”.
MFIs must be profitable (in order to last), socially responsible (in order to make a difference to people’s lives) and environmentally friendly (in order to strengthen resilience to climate change).
Profitability is necessary in the sector given that it implies sustainability.
Innovation and digital technology are also profitability factors for microfinance. Technological innovations such as blockchain and the development of new products and services enable MFIs and their clients to benefit from significant optimisation. At stake are lower costs and a better user experience that should strengthen the social impact of microfinance by making it accessible to a greater number of people.
“ BNP Paribas has been active in the sector since 1989. Within the Group, the microfinance department does not follow a traditional commercial approach. Even if we practice a fair margin on our operations, our objective is mainly social because it requires us to finance 350,000 micro-borrowers by the end of 2018. It is an opportunity to contribute to the social development and the financial inclusion of fragile populations in countries where we work. ”
Head of Microfinance for Americas and Asia, BNP Paribas
Microfinance in the world in 2017Despite a drop in the growth rate in the number of borrowers in 2017, Microfinance Institutions (MFIs) continue to register growth, with some positioned on the growing FinTech and mobile banking market: 40% of them are already developing mobile banking services, and 20% are in the testing phase.
Microfinance continues to help reduce financial exclusion, with 69% of adults having access to banking services in 2017, an improvement of 7% versus 2014.
With nearly two thirds of global borrowers (60%) in 2017, South Asia remains the global leader in terms of number of borrowers. India led the way among countries active in microfinance in the world in 2017, with 50.9 million borrowers and outstandings of EUR 17.1 billion, followed by Bangladesh, Vietnam, Mexico and the Philippines.
The typical borrower profile varies from one region to another. In South Asia, women accounted for 92% of borrowers in 2017, while in Eastern Europe and Central Asia, they represented 45% of MFI clients. Most borrowers live in rural environments: 2/3 of clients in Africa, East Asia and South Asia, with the exception being Latin America, where customers are more urban.
In terms of profitability, the performance of MFIs is heavily impacted by geopolitical situations and economic models, which vary from one region to the next. While in East Europe and Central Asia, MFIs registered a decline in performance, returns in Africa were positive. Performances were up in South Asia, supported by high productivity and effectiveness.
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