Eastern Europe and Central Asia (EECA)

Microfinance Investment in Eastern Europe and Central Asia

MIVs in Eastern Europe and Central Asia

Microfinance Networks in Eastern Europe and Central Asia

Research on Eastern Europe and Central Asia Microfinance



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Microfinance Investment in Eastern Europe and Central Asia

The Eastern Europe and Central Asia region has witnessed some of the most dramatic political and economic developments in the past 15 years. The countries of the Eastern Europe and Central Asia (EECA) region enjoyed high investment flows and experienced sustained economic growth. Indeed, ten countries in the region have managed to transition from low-income poverty stricken economies, to stable economic and political systems capable of becoming members of the European Union.

In the face of the rapidly changing environment in the region, MFIs have also been adjusting their activities. As opportunities for entrepreneurial activities expand in many countries with high economic growth, MFIs have been developing at a fast pace. However, it is important to acknowledge the significant differences among the sub-regions and countries of Eastern Europe and Central Asia. The region is commonly divided into five sub-regions, each with distinct features that influence microfinance sector development: the Balkans (Albania, Bosnia and ‎Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, Serbia), Caucasus (Armenia, Azerbaijan, Georgia, Turkey) Central and Eastern Europe (Belarus, Bulgaria, Moldova, Lithuania, Poland, Romania, Ukraine), Central Asia (Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Uzbekistan), and Russia.

A key feature of the regional microfinance markets is a sharp contrast between consolidation in more mature markets, such as that of the Balkans, and proliferation in the relatively younger markets of Central Asia and Russia. According to a MIX and CGAP report in 2008, an average MFI in the Balkans was seven times larger than an average institution in the Caucasus in 2008, and over 20 times larger than its Central Asian peers.  In terms of total active borrowers, CEE was the absolute leader in the region - accounting for more than half of the total for the region, primarily due to the prevalence of credit unions, followed by the Balkans and Central Asia (Eastern Europe and Central Asia Microfinance Analysis and Benchmarking Report, 2008).

The policy environment has been a main contributor to the development of the microfinance industry in EECA. For almost 10 years, policy makers have been increasingly engaged in developing legal and regulatory frameworks for microfinance activities. Some countries (Bosnia and Herzegovina, Kyrgyzstan and Tajikistan) have adopted specialized, tiered microfinance laws. Some have adopted narrower laws focused on specific types of microfinance institutions (Georgia, Kazakhstan), while other countries have made adjustments to existing financial sector regulations (Eastern Europe and Central Asia Microfinance Analysis and Benchmarking Report, 2008).

Microfinance players in EECA include local banks, specialized microfinance banks, redit unions, NGOs and specialized NBFIs. However, the region is unique, due to the vast majority credit union institutions.

According the MIX Microfinance Analysis and Benchmarking 2009 report, 34 funders had committed almost $3.3 billion to ECA as of December 2008, 22% of total funding committed globally. This is the second largest portion among the world regions, after South Asia. Not surprisingly, among the sub-regions, EECA had the lowest portion of donations and the highest portion of investments in the sector, receiving 12 percent and 88 percent respectively (CGAP Funder Survey, 2009).

Overall, lending from domestic commercial banks is more significant than government funding, which is limited in many of the regional countries. The nascent microfinance industry in Central Asia is stands out with heavy governmental participation through state sponsored microfinance banks and government lending to MIFs.

In terms of funding instruments, debt was the most widely used across the region, while grants have been marginal sources of funding. However, EECA is the only region in the world where private fund investors supply the vast majority of foreign MFI funding (85 percent), and not development financial institutions and multilateral agencies. However, DFIs also have a notable presence in the portfolio of private funds. Overall, MFIs in the Balkans and CEE face lower interest rates on foreign loans than their peers in the Caucasus and Central Asia. Funds from domestic commercial banks are cheapest and most prevalent in the Balkans.

Table 1: Funder Data by Sub-Region*

Balkans

Origin

Type

Balance USD

% of Total

Rates

Foreign

Borrowings

Fund

559,356,714

15.80%

7.27%

DFI & Bilaterals

504,494,554

14.30%

6.79%

NGO/Foundation

33,772,131

1.00%

3.69%

Commercial Bank

26,730,935

0.80%

7.46%

Government

21,594,612

0.60%

0.11%

Other

4,342,787

0.10%

n.a.

Foreign Total

1,150,291,734

32.60%

LOCAL

Deposits

Retail Deposits

1,440,785,850

40.80%

n.a.

Corporate and Institutional Deposits

739,474,874

20.90%

n.a.

Borrowings

Commercial Bank

127,239,748

3.60%

7.91%

Gov’t & Development Agencies

52,057,180

1.50%

4.48%

NGO/Foundation

16,082,478

0.50%

4.18%

Bond

Bond

7,186,627

0.20%

8.40%

Local total

2,382,826,756

67.40%

Total

3,533,118,490

100%

 

Caucasus

Origin

Type

Balance USD

% of Total

Rates

Foreign

Borrowings

Fund

280,856,257

33.20%

9.40%

DFI & Bilaterals

166,365,370

19.70%

9.54%

NGO/Foundation

17,484,366

2.10%

3.94%

Commercial Bank

15,021,413

1.80%

n.a.

Other

11,292,366

1.30%

n.a.

Foreign Total

491,019,770

58.10%

LOCAL

Deposits

Retail Deposits

237,792,307

28.10%

n.a.

Corporate and Institutional Deposits

92,361,326

10.90%

n.a.

Borrowings

Government

6,470,086

0.80%

0.73%

Commercial Bank

17,380,948

2.10%

9.99%

NGO/Foundation

36,891

0.00%

n.a.

Local total

354,041,557

41.90%

Total

845,061,328

100%

Central Eastern Europe (CEE)

Origin

Type

Balance USD

% of Total

Rates

Foreign

Borrowings

Fund

137,817,713

9.60%

8.91%

DFI & Bilaterals

168,743,178

11.80%

7.65%

Commercial Bank

63,360,765

4.40%

7.21%

Government

11,334,702

0.80%

7.04%

Foreign Total

381,256,358

26.60%

LOCAL

Deposits

Retail Deposits

620,791,976

43.30%

n.a.

Corporate and Institutional
Deposits

300,041,346

20.90%

n.a.

Borrowings

Commercial Bank (Moldova
and Poland)

55,561,261

3.90%

12.57%

Bond

Debt Securities

77,522,703

5.40%

11.89%

Local total

1,053,917,287

73.40%

Total

1,435,173,645

100%

Central Asia

Origin

Type

Balance USD

% of Total

Rates

Foreign

Borrowings

Fund

100,100,970

12.00%

9.56%

DFI & Bilaterals

66,855,776

8.00%

9.04%

Other

17,750,444

2.10%

n.a.

Commercial Bank

15,393,443

1.80%

7.99%

NGO/Foundation

8,121,580

1.00%

4.91%

Government

222,822

0.00%

n.a.

Foreign Total

208,445,035

25.00%

LOCAL

Deposits

Retail Deposits

515,906,211

61.90%

n.a.

Corporate and Institutional Deposits

24,298,100

2.90%

n.a.

Borrowings

Commercial Bank

36,021,661

4.30%

10.29%

Government

43,542,981

5.20%

1.17%

Other

3,357,543

0.40%

n.a.

Fund

1,598,453

0.20%

13.09%

Local total

624,724,949

75.00%

Total

833,169,984

100%

*From: MIX Market, 2008 “Eastern Europe and Central Asia Microfinance Analysis Benchmarking” Microfinance Information Exchange (MIX), Washington, D.C.

 

Table 2: Snapshot of Microfinance in EECA*

No. of MFIs

No. of Borrowers (thousands)

Total Population (mill.)

Poor Population (mill.)

Penetration Rates

Borrowers / pop. (%)

Borrowers / poor (%)

Albania

6

74

3

0.8

2.3%

9.1%

Armenia

9

189

3

1.5

6.3%

12.4%

Azerbaijan

18

211

9

4.3

2.5%

5.0%

Bosnia and Herzegovina

15

405

4

0.7

10.7%

55.1%

Bulgaria

7

67

8

1.0

0.9%

6.9%

Croatia

2

2

4

0.1

0.1%

2.6%

Georgia

9

125

4

2.4

2.8%

5.2%

Kazakhstan

25

80

15

2.4

0.5%

3.4%

Kosovo

11

117

2

0.8

5.9%

15.1%

Kyrgyzstan

35

201

5

2.3

3.8%

8.9%

Lithuania

1

69

3

0.3

2.0%

26.0%

Macedonia

4

43

2

0.4

2.1%

9.6%

Moldova

2

18

4

1.8

0.5%

1.0%

Mongolia

10

352

3

0.9

13.5%

37.3%

Montenegro

3

77

1

0.1

12.8%

55.2%

Poland

2

14

38

5.6

0.0%

0.2%

Romania

7

53

22

5.5

0.2%

1.0%

Russia

47

151

142

27.8

0.1%

0.5%

Serbia

4

112

7

1.8

1.5%

6.1%

Tajikistan

25

106

7

5.0

1.6%

2.1%

Turkey

2

6

74

19.9

0.0%

0.0%

Ukraine

3

58

46

9.0

0.1%

0.6%

Uzbekistan

12

75

27

7.4

0.3%

1.0%

Aggregate EECA

259

2604

433

101,896

Average in EECA Countries

11.3

113.2

18.8

4.4

3.1%

11.5%

*From: Gonzalez, Adrian, 2008. “How Many Borrowers and Microfinance Institutions (MFIs) Exist?” Microfinance Information Exchange (MIX), Washington, D.C.

IAMFI has compiled additional statistical data on each country in this region regarding population size, poverty rates, foreign capital flows, investors’ environment ratings and sovereign ratings. IAMFI members can access these data here.

For more information and details on the sources used to create this section, please see research section below, or click here. 


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MIVs in Eastern Europe and Central Asia

While most MIVs spread their microfinance investments around the world, listed below are MIVs that chose to focus their investment in the EECA region or in specific countries within the region. To read more general information on MIVs and their challenges see the Microfinance Investment Vehicles section.

MIVs with EECA Focus

  • Access Holding – LFS Financial Systems
  • Balkan Financial Sector Equity Fund – Dfe Partners
  • Micro Finance Bank of Azerbaijan (MFBA) Bond I - Micro Finance Bank of Azerbaijan
  • Microfinance Loan Obligations (MFLO) 2: Opportunity Eastern Europe – Symbiotics
  • Rural Finance Corporation - RFC


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Microfinance Networks in Europe and Central Asia

What are microfinance networks?

A microfinance network is commonly an umbrella organization for multiple microfinance institutions, providing an avenue for cooperation and support. Through these networks, network member MFIs can share ideas, experiences, and solutions common challenges. In addition, networks help facilitate the MFI’s funding and investing procedures by connecting their members with funders and investors. Many times, networks strengthen operational, technical, and financial capacity of MFIs by promoting MFI standards and best practices and training.

Some microfinance networks promote a particular methodology through technical assistance (such as ACCION or Women’s World Banking) and may have a partial or whole equity stake in their members and partners. Country and regional microfinance networks have an additional focus on advocating local microfinance policies and help members transform into regulated deposit-taking financial intermediaries. In these networks, members are partial owners themselves of the network and govern the network through seats on the Board of Directors.

Listed below are a few of the prominent microfinance networks in the region.

Accion
One of the largest international microfinance Networks, Accion is an NGO that provides technical service and consulting. Headquartered in the United States, ACCION is an innovator in financial access, having pioneered many of the best practices and emerging standards in the industry. It provides a full range of technical assistance and management services, as well as investment and governance support to help financial institutions build institutional capacity and financial strength in order to serve low-income households. Its emphasis on commercial viability and institutional growth has helped its partner MFIs reach scale and financial self-sufficiency. Established in 1961 and a leader in microfinance since 1973. ACCION partners with 32 microfinance organizations throughout Latin America, the Caribbean, Asia and Africa. In 2008, ACCION and its partners served over 3.7 million borrowers, and since 1998 has loaned $23.4 billion to more than 7.7 million people.
Website: www.accion.org
Regions of Operation:East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, North America, Sub-Saharan Africa, South Asia

 

Association of Microfinance Organizations in Tajikistan (AMFOT)
Supports the establishment and development of the microfinance sector in Tajikistan as an important component of the financial system of the country in order to facilitate the provision of access to microfinance services and better products for population of Tajikistan. AMFOT wishes  to become a sustainable national network of microfinance institutions as a key player in decision making processes in the financial system of country. Main Areas of activities of AMFOT are lobbying and MFI Capacity Development.
Website: http://www.amfot.tj/en/
Regions of Operation: Europe and Central Asia

 

Comite d'Echanges, de Reflexion et d'Information sur les Systemes d'Epargne-credit (CERISE)
CERISE is aknowledge exchange network for microfinance practitioners. Founded in 1998, CERISE brings together a variety of practitioners, researchers, donors and investors from the North and South.The work is focused on four themes:Impact and Social Performance, Agricultural and Rural Finance, Governance and Social Viability, andIntervention Methods.
Website:  http://www.cerise-microfinance.org
Regions of Operation: Europe and Central Asia

 

Community Development Finance Association
The Community Development Finance Association (CDFA) is a trade association for Community Development Finance Institutions (CDFIs). CDFIs are sustainable, independent financial institutions which provide loans and support to businesses and individuals. They help people who have had trouble getting finance from the usual sources such as banks and building societies. As the trade association for CDFIs, CDFA’s mission is to grow, support and strengthen the sector.
Website: http://www.cdfa.org.uk
Regions of Operation: Europe and Central Asia

 

Développement International Desjardins (DID)
DID is a Canadian organization specialized in providing technical support and investment to community-owned and operated institutions worldwide. Its technical support services include drafting legislation for savings and credit cooperatives; setting up new institutions and organizing them into networks; introducing new financial products, and designing supervision strategies. In addition, DID’s investment funds provide financing and investment capital to microfinance institutions and to funds specializing in microfinance. 
Website: http://www.did.qc.ca/en
Regions of Operation: East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, Sub-Saharan Africa, South Asia 

 

Freedom from Hunger (FFH)
Freedom from Hunger is an international development organization working in seventeen countries across the globe. In 1988, it developed the world's first integrated microcredit, health and nutrition education program. Today, it is best known for its ‘Credit with Education’ program that combines microfinance with health and lifeskills services and serves over 750,000 families in Africa, Asia and Latin America. It partners with more than 50 in-country organizations including credit unions, cooperatives, rural banks and NGOs to provide savings and credit facilities, and integrate education into lending services.
Website: http://www.freedomfromhunger.org
Region of Operation: East Asia and Pacific, Latin America and the Caribbean, Sub-Saharan Africa

 

Foundation for Sustainable Development (FSD)
The Foundation for Sustainable Development (FSD) was established, in accordance with the FBiH Government decision, for financing of various reconstruction and transition projects that support sustainable development of the Federation of Bosnia and Herzegovina. FSD promotes self-employment and microenterprise development by increasing the availability of credit and other business services to microenterpreneurs. Providing assistance in creation of self-sustainable Microfinance Institutions (MFI) in the Federation of Bosnia and Herzegovina. Creation of legal framework for development of Microcredit sector. Providing technical assistance and training for municipal authorities in the area of financial management and planning. Financing of microcredit organizations with the aim of strengthening their institutional capacities and a microcredit fund. Providing microcredit services for socially endangered categories of population and creating conditions for their employment. Financing of reconstruction and building of local infrastructure.
Website: http://www.fsdinternational.org/
Regions of Operation: Europe and Central Asia

 

Microfinance Centre for CEE and NIS (MFC)
Headquartered in Poland, the MFC is a recognized training and consulting center providing high quality microfinance oriented open-enrollment and customized in-house training courses as well as consultancies for MFIs in the region. Strategic partnerships include ING, Citigroup, CGAP, USAID, and the EC.
Website: http://www.mfc.org.pl/

Regions of Operation: Europe and Central Asia

 

Russian Women`s Microfinance Network
The mission of the Russian Women`s Microfinance Network (RWMN) is to support the development of sustainable women-focused, locally managed microfinance institutions (MFIs) throughout Russia by creating an effective financial and technical structure that provides high-quality services to partner MFIs over the long-term. Technical assistance, includes: consulting; formal training; informal exchange opportunities; on-going evaluation of program performance; MIS development and support; access to global best-practice through exposure trips; and dissemination of best practice materials and networking opportunities. Financial services, by providing credit lines to partner institutions. Policy impact work to create an enabling legal and regulatory environment for the development of the microfinance sector in Russia.
Website: http://www.rwmn.ru
Regions of Operation: Europe and Central Asia

 

Small Enterprise Education Promotion Network (SEEP)
Based in Washington, DC, the SEEP Network is a leading international network and promoter of best practice in enterprise development and financial services. Its mission is to connect microenterprise practitioners in a global learning community. Since its inception in 1985, it has worked to research and document best practices and convene key industry stakeholders in its well known annual conference. The primary way it undertakes practitioner-driven research is through working groups composed of its members which number 77 across 180 countries.
Website: http://seepnetwork.org
Regions of Operation: East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, Sub-Saharan Africa, South Asia \

 

Women's World Banking (WWB)
Headquartered in New York City, Women's World Banking is an international NGO Network, which provides technical services and consulting. WWB was established in 1979 to be a voice and change agent for poor women entrepreneurs. Its goal is to build a network of strong financial institutions around the world and ensure that the rapidly changing field of microfinance focuses on women as clients, innovators and leaders. WWB provides support, advice, training and information to a global network of more than 54 microfinance institutions and banks in 30 countries worldwide. Its network members offer credit and other financial services directly to more than 11 million poor entrepreneurs, 70 percent of them women. Members include 24 commercial banks and other financial institutions in the Global Network for Banking Innovation (GNBI).
Website: http://www.swwb.org
Regions of Operation: East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, North America, Sub-Saharan Africa, South Asia

 

World Savings Banks Institute (WSBI)
The World Savings Banks Institute (WSBI) is one of the largest international banking associations and the only global representative of savings and retail banks. It carries the voice of around 1150 financial intermediaries in nearly 90 countries. The WSBI is an independent non-governmental organisation. It disseminates information, organizes training and exchanges of experience and encourages savings banks to participate in development projects launched by international financial institutions.
Website: http://www.savings-banks.com/PortalHome.aspx
Regions of Operation: Europe and Central Asia

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Research on Europe and Central Asia Microfinance

Microfinance in ECA Sector in 2009

2009 was the second year of the global financial crisis during which the true effect on
microfinance started to be seen. This report highlights the development of microfinance in
the Europe and Central Asia (ECA) region and offers an outlook for the near future.

Published by: Microfinance Centre for CEE and NIS

March 2010

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Microfinance in ECA on the Eve of Financial Crisis. 2009 Edition.

As in much of the rest of the word, the economic situation in the ECA region worsened at the end of 2008. GDP growth slowed down, inflation peaked and the current account deficit widened in the majority of the region’s countries. The economic crisis had an effect on microfinance clients’ households, resulting in lower business income, fewer income sources, a higher share of food expenditures in family budgets and lower remittances. Despite the economic crisis MFIs in the ECA region continued growing at a rate of 33% with the total outstanding loan portfolio reaching USD 18.5 billion. The decelerating trend of growth seen since 2005 showed as yet no sharp decline thanks to the high growth of commercial banks downscaling programmes supported by international investors.

Published by: Microfinance Centre for CEE and NIS

November 2009

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Eastern Europe and Central Asia Microfinance Analysis Benchmarking Report 2009

Trends in development, policy environment, funding and performance of MFIs. This report provides an overview of microfinance trends in Eastern Europe and Central Asia (ECA). It discusses the general level of development, policy environment, funding sources, external investments and MFI performance. A key feature of the region’s microfinance markets is the sharp contrast between consolidation in more mature markets like the Balkans and proliferation in relatively younger markets like Central Asia and Russia.

Published by: Microfinance Information Exchange (MIX) and CGAP

Mar 2009

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The Triple Bottom Line for Microfinance

The commercial success of microfinance calls for a fundamental question: does microfinance actually lead to sustainable development? So far, it is widely assumed that providing financial services to the unbanked generates positive development impacts. However, few microfinance institutions (MFIs) really measure and report the social and environmental impact of their microfinance activities, particularly the impacts that go beyond the direct household level. In this article, we describe how MFIs can monitor and report the economic, social and environmental effects of their activities (triple bottom line). This article also illustrates how MFIs can support their clients in enhancing their social & environmental impact. We believe that these lessons can be useful for European MFIs that want to improve their triple bottom line performance.

Geert Jan Schuite and Alberic Pater

Published by: Triodos Facet

Dec 2008

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Lessons for the Involvement of European Development Banks and Other IFIs in Microfinance Institutions: The Case Studies of Grameen Bank, BancoSol and ProCredit Bosnia & Herzegovina

This paper examines three successful MFIs, Grameen Bank from Bangladesh, BancoSol from Bolivia, and ProCredit Bank Bosnia and Herzegovina, to determine best practices for the role of European development banks and other international financial institutions in microfinance development. The paper examines origins and early growth of each MFI, current ownership structure, lending technology and development impact. Study findings indicate that: Microfinance has some significant weaknesses, but it brings benefits to underprivileged populations in developing and transition economies and their financial sectors; European donors should continue to support microfinance, especially because well-running MFIs make a profit and the initial investment is earned back; and Effective support comes in the form of technical assistance and the supply of starting capital through equity participation and soft loans.

Geert Jan Schuite and Alberic Pater

Published by:

May 2008

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2006: The State of Microfinance Industry in Eastern Europe and Central Asia

This report looks at the progress that microfinance has made in the regions of Eastern Europe and Central Asia (ECA), since the early 1990s when the regions began moving towards a market economy. The report states that despite the decreased presence of state-owned banks and financial sector development, few commercial banks have shown a strategic interest in lending to micro and small enterprises, there are almost 6,000 institutions in the region that provide microfinance services, with a majority being credit unions located in Central and Eastern Europe (CEE), and the four main types of organizations providing microfinance services to a wide range of clients are credit unions, NGOs/ non-bank financial institutions (NBFIs), microfinance banks and downscaled commercial banks. The report concludes with a look at the social performance of NGOs/NBFIs.

Justyna Pytkowska and Marcin Rataj

Published by: Microfinance Centre for CEE and NIS

September 2007

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The Cost Structure of Microfinance Institutions in Eastern Europe and Central Asia

Lending methodologies of MFIs to ascertain cost efficiency. This paper presents a systematic statistical examination of the performance of microfinance institutions (MFIs) operating in Eastern Europe and Central Asia. It explores the following in detail: description of MFIs; Microfinance in the ECA Region; the translog Model (transcendental logarithmic) form is used for all the cost estimations. Data: The data used in the study have been provided by the Microfinance Center for CEE and NIS. Estimation results: Several models are estimated to uncover aspects of MFI operations.

Valentina Hartarska, Steven B. Caudill and Daniel M. Gropper

Published by: William Davidson Institute

January 2006

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