SOME FEATURES OF MICRO-FINANCE IN ASIA

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‘Asia is the most developed continent in the world in terms of volume

of MFI (micro fi nance institution) activities’. This conclusion, drawn by

Lapenu and Zeller (2001: 27), is based on analysis of over 1500 institutions

from 85 developing countries. Comparing MFIs in Asia with those in Africa

and Latin America, the study found that in the 1990s Asia accounted for

the majority of MFIs, whilst Asian MFIs had the highest volume of savings

and credit, and served more members than any other continent.

This generalization of course covers up some wide disparities within the

region. East Asia is particularly well served by MFIs. The sheer number

of members served and the largest distribution of loans and mobilization

of savings in terms of GNP is found in Bangladesh, Indonesia, Thailand

and Vietnam. In contrast, the two most populated countries in Asia, India

and the PRC, have very low outreach, despite a high concentration of the

region’s poor. Countries such as Afghanistan, Myanmar and Pakistan also

have low outreach due to a variety of factors.

Despite these disparities within the region, overall it is said that MFIs

have fl ourished in Asia and that compared to other regions they exhibit

good outreach and high repayment rates.2 Table 7.1 presents data from the

Microbanking Bulletin, which reports only data on the limited number of

MFIs who choose to supply the Bulletin. Those reporting to the Bulletin are

thought to be amongst the best and are therefore unlikely to be representative

(Meyer, 2002: 14). Nonetheless amongst these, by various measures, Asian

MFIs demonstrate relatively good outreach. Asian MFIs account for the

largest number of borrowers (70 per cent of whom are women) and are

second to African MFIs in terms of number of voluntary savers. In terms

of impact, size of loans and deposits are often taken as a simple indicator

of impact on the poor. By this criterion Asian MFIs have among the lowest

Loan and Savings Balance per Borrower, even after adjusting for GNP per

capita, suggesting that they are effectively reaching the poor.

Table 7.1 Outreach indicators by region

Average Average

loan balance saving

per borrower balance per

(US$) saver (US$)

Africa 228 105

Asia 195 39

Eastern Europe/ 590 n.a.

Central Asia

Latin America 581 741

Middle East/

North Africa 286 n.a.

Source: Microbanking Bulletin, Issue no. 9, July 2003.

The institutions that provide micro-fi nance and the method used to

deliver micro-fi nance products take a variety of forms and we see almost

all of these varieties within Asia, whether cooperatives, village banks, and

lending to solidarity groups or individuals.

As there can be a variety of lending approaches, a range of institutional

models are also found for MFIs. These include unregulated NGOs, credit

unions or cooperatives (which are often regulated), registered banking

institutions (either banks or non-bank fi nancial institutions) and government

organizations. In some cases the institutional forms blur into one another,

with government banks operating micro-fi nance services in collaboration

with NGOs or credit cooperatives.

In recent years there has been a signifi cant shift in both thinking and

practice in the micro-fi nance sector with MFIs coming to be seen as providing

a range of fi nancial services to the poor, including savings facilities, not just

micro-credit. The intellectual argument for this comes from the insight that

the poor have a strong need to manage their very limited resources and that

various forms of savings play an important role in household budgeting by

the poor (Rutherford, 2000). The practical demonstration of this is the shift

from the original Grameen model of micro-credit for productive purposes

to Grameen Mark II with its emphasis on a range of fl exible fi nancial

products, including loans of varying repayment periods for consumption as

well as investment and a range of short- and longer-term savings accounts

(Rutherford, 2003).

In parallel with this reappraisal of micro-fi nance within the NGO sector

has gone a move towards the transformation of NGOs into regulated

fi nancial institutions with a view to allowing them to tap non-donor sources

of funding and to allow them to offer a wider range of fi nancial services. This

trend, which has seen 39 important NGOs (15 in Asia) transformed over the

period 1992–2003, places micro-fi nance squarely within the conventional

fi nancial sector and raises important issues of governance and regulation in

connection with the new instititions (Fernando, 2003). Given that the failure

of commercial fi nancial institutions to reach the poor provided the initial

impetus for MFIs, this new trend is paradoxical and raises questions as to

whether the initial poverty reduction objectives of the transformed NGOs

will be subjugated to commerical criteria (so-called ‘mission drift’), although

Fernando (2003) argues that as yet there is little evidence of this.