South Asia
Microfinance Investment in South Asia
MIVs in South Asia (PP)
Microfinance Networks in South Asia
Research on South Asia Microfinance (PP)
Microfinance Investment in South Asia
Microfinance in South Asia is an extremely diverse industry reflecting the wide-ranging contexts of microfinance. The region stands out with the greatest number of microfinance providers and the largest client base accompanying a traditionally strong focus on social impact. It also has by far the largest potential market judging by the number of unbanked people. Of the MIX Market top 100 MFIs, 17 are from South Asia, while 13 of the largest MFIs in the world, in terms of number of active borrowers, are located in this region.
Nevertheless, CGAP figures show that Asia receives only 7 percent of global investment – the lowest regional amount after Sub Sahara Africa. The imbalance between market size and investment is partly due to MFIs funding themselves through client deposits and partly due to state-owned lenders crowding out commercial MFIs or restrictions on foreign investment. Foreign exchange rate risk and the volatile currencies in the region create another significant challenge for investors.
The type of funding available to MFIs depends largely on institution type and the macro-economic and regulatory environment in which they operate. South Asian MFIs tend to be formal financial institutions pursuing group-lending methodologies with compulsory savings. As such, they rely mostly on debt and compulsory savings to grow. In the case of Bangladesh, compulsory savings constitute over 30 percent of funding, with much of the rest coming from locally sourced debt. In India the reliance on local debt financing is even greater. However, with the ability to accept deposits in Nepal and Sri Lanka, debt constitutes just a third of MFI funding in these countries, while nearly a quarter of their funds, on average, are derived from voluntary deposits.
Like in other regions, profitability is generally limited to the leading top-tier MFIs, which tend to receive most of the commercial investment. However, the largest MFIs are reaching their funding limit and the smaller MFIs are still unattractive to investors.
Despite impressive potential for growth, microfinance in South Asia has only succeeded in satisfying a small percentage of the total demand for microfinance services. Although South Asia is home to some of the largest microfinance institutions, such as ASA Bangladesh, many of them are unable to expand outreach. The reasons are mainly due to a lack of financial resources and subsequent inability to invest in developing an adequate level of systems and human resource capacity. Also, many countries in the region operate under challenging regulatory frameworks to sustainable microfinance initiatives, especially in regards to savings and insurance products.
Table 1: Snapshot of Microfinance in South Asia*
No. of MFIs |
No. of Borrowers (thousands) |
Total Population (mill.) |
Poor Population (mill.) |
Penetration Rates |
||
Borrowers / pop. (%) |
Borrowers / poor (%) |
|||||
Afghanistan |
14 |
360 |
32 |
15.0 |
1% |
2% |
Bangladesh |
238 |
32,548 |
159 |
79.0 |
21% |
41% |
India |
223 |
15,408 |
1,123 |
321.3 |
1% |
5% |
Nepal |
66 |
932 |
28 |
8.7 |
3% |
11% |
Pakistan |
32 |
1,383 |
162 |
52.9 |
1% |
3% |
Sri Lanka |
33 |
1,796 |
20 |
4.5 |
9% |
40% |
Aggregate SA |
606 |
52,427 |
1,524 |
481,430 |
||
Average in SA Countries |
101 |
8,738 |
254 |
80.2 |
6% |
17% |
* From: Gonzalez, Adrian, 2008. “How Many Borrowers and Microfinance Institutions (MFIs) Exist?” Microfinance Information Exchange (MIX), Washington, D.C.
Table 2: Overview of MFIs Reporting to the Mix Market - 2007 Data
Gross Loan Portfolio (USD Millions) |
Deposits (USD Millions) |
Growth Rate Active Borrowers (2006 – 2007) |
|
Afghanistan |
106 |
5 |
32% |
Bangladesh |
1,680 |
374 |
20% |
India |
1,359 |
31 |
44% |
Nepal |
81 |
16 |
13% |
Pakistan |
143 |
32 |
57% |
Sri Lanka |
263 |
189 |
22% |
Aggregate SA |
3632 |
647 |
|
Average in SA Countries |
605 |
108 |
27% |
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.
MIVs in South Asia
While most MIVs spread their microfinance investments around the world, some chose to focus on specific regions. While no MIV has focused on the SA region of yet, the MIVs listed below directed their investments to India, which is part of the region. To read more general information on MIVs and their challenges see the Microfinance Investment Vehicles section.
- Aavishkaar Goodwell India Microfinance Development Company
- Bellwether Microfinance Fund
Microfinance Networks in South 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.
In South Asia, we can see a range of well established networks in India, Pakistan and Bangladesh and more nascent networks in Sri Lanka, Nepal and Afghanistan. However, many lenders in the region are categorized by a traditionally strong social orientation and a group based lending approach, as opposed to individual lending. This approach leads to higher outreach numbers, reduces costs, but limits the number of products which can be offered.
Accion 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 |
All India Association for Micro Enterprise Development (AIAMED ) AIAMED had beginnings in the South Asia Network (SAN) in 1994. In 1997 it was registered as a trust to act as a support organization a network. Its mission is to strengthen non-governmental and other type of organizations involved in micro finance and micro enterprise. Apart from capacity building of these organizations, AIAMED is also involved in institutional strengthening of the sector though joint action, information sharing, training, and research. Website: http://www.aiamed.org.in/ Regions of Operation: South Asia – India |
Asia-Pacific Rural and Agricultural Credit Association (APRACA) The establishment of a Regional Association that promotes cooperation and facilitates mutual exchange of information and expertise in rural finance was proposed in October 1974 and APRACA was formally launched during in 1977. The International Fund for Agricultural Development (IFAD) has provided APRACA with a five–year technical and financial assistance grant covering the period under the Regional Program for Accelerating the Financial Empowerment of Poor Rural Communities in Asia and the Pacific through Rural Finance Innovations - or the APRACA FinPower Programme. APRACA, with its wide network of member rural financial institutions and central banks, is a viable and strong partner for IFAD to engage with senior policy makers and central banks on key policy issues. Website: http://www.apraca.org/ Region of Operation: East Asia and Pacific, South Asia |
Association of Asian Confederation of Credit Unions (AACCU) ACCU supports members to strengthen the credit union by providing technical assistance, training, and information. ACCU takes active development role in credit promotion and project development and evaluation. The Association of Asian Confederation of Credit Unions (ACCU) is the Asian regional based representative organization of credit cooperatives/unions and similar cooperative financial organizations. It aims to make credit unions more relevant community-based financial institutions and promote them as effective instruments of socio economic development of the people. Since its establishment in 1971 it has served more than 16,000 credit unions with 20.5 million individual members in 26 countries in the region along with 17 affiliates promoting credit unionism in Asia.
Website: http://www.aaccu.coop/ Regions of Operation: East Asia and Pacific, Middle East and North Africa, South 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 |
Grameen Foundation Website: http://www.grameenfoundation.org/ Regions of Operation: East Asia and Pacific, Latin America and the Caribbean, Middle East and North Africa, North America, Sub-Saharan Africa, South Asia |
Sa-Dhan Founded as the Association of Community Development Finance Institutions by SEWA Bank, BASIX, Dhan Foundation, FWWB, MYRADA, RGVN, SHARE and PRADAN in 1999, Sa-Dhan's mission is to build the field of community development finance in India, to help its member and associate institutions to better serve low income households, particularly women, in both rural and urban India. Sa-Dhan has actively helped to create a facilitating environment for microfinance through its advocacy work. It has been continually engaged in the development of microfinance legislation working with the Ministry of Finance, the National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI) to provide information on the needs of the sector. Sa-Dhan also helped inform the framework of the microfinance bill in terms of content by conducting a seven country study on regulation and supervision conducted by the network and provided as material for the draft process of the bill. Website: http://www.sa-dhan.net Region of Operation: South Asia |
Sindh Microfinance xNetwork (SMN) SMN was established with the objective of providing opportunities to grassroots level microfinance organizations in Pakistan to maximize their outreach on a sustainable basis. The network’s objectives are to: enhance the capacity and support of technical assistance; build a database of microfinance institutes; conduct research on microfinance related issues and provide development services ; facilitate effective networking at the provincial, national and international level; and disseminate information and share experiences and lessons learned. Website: http://www.smn.org.pk Region of Operation: South Asia |
Small Enterprise Education Promotion Network (SEEP) Website: http://seepnetwork.org/ Network Members: 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 |
South Asian Microfinance Network (SAMN) The South Asian Microfinance Network (SAMN) is an initiative by the Agency for Technical Cooperation and Development (ACTED) to promote economic development in South Asia by establishing a network for coordination and cooperation between the European financial sector and the microfinance sector in South Asia. This is the first initiative of its kind in South Asia to provides a unified platform for MFIs in the region and European investors to forge business linkages. In addition, the network also provides a knowledge base to its members on micro-finance and investment related issues and opportunities. Website: http://www.samn.eu Regions of Operation: South Asia |
Women's World Banking (WWB) 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 |
Research on South Asia Microfinance
Microfinance in Asia - Trends, Challenges and Opportunities
This report compiles the wide-ranging and voluminous content presented at the Asia Microfinance Forum 2008 convened in Hanoi, Vietnam, in 2008, also drawing on various regional country reports. The report seeks to address questions for the future. How can the supply of microfinance services begin to match unmet demand in Asia? This report highlights many of the challenges in addressing this demand, particularly in relation to limited funding and the dearth of adequate regulatory frameworks to address this shortfall.
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