Global microscope on the microfinance business environment 2012

11
Regional
fi ndings
East and South Asia
The Asian region is comprised of seven countries in
East Asia and fi ve in South Asia, covering the bulk
of the microfi nance market in the region. From
fourth place in 2011, Asia now ranks third among
the Microscope’s fi ve regions in overall score,
mainly owing to substantial improvements in the
Supporting Institutional Framework scores. Asia as a
whole improved only slightly in Regulatory
Framework and Practices, ranking third, behind
Sub-Saharan Africa and East Asia. On average, East
Asia’s regional score is higher than South Asia.
Asia’s political stability scores experienced a
signifi cant drop in Vietnam, India and Bangladesh,
placing the region in second to last place, ahead of
only the Middle East and North Africa.
India, in particular, is still recovering from a
full-blown crisis within the microfi nance sector of
Andhra Pradesh (AP)—the most important MF
market both in terms of outreach and portfolio—
that began in October 2010. A state government
decree, limited MFIs’ operations explicitly and was
designed to prevent competition with statesponsored
microfi nance providers. MFIs
experienced client drop-out, access to funding
froze and a number of MFIs defaulted. By mid-
2012, the crisis had resulted in an estimated 10m
defaulted clients and MFIs were unable to recover
US$1-2bn in outstanding loans.
However, since the start of 2012, the MF sector
has begun to move beyond the AP crisis. A draft of
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
regulations introduced by the Reserve Bank of
India (RBI, the central bank) in the wake of the AP
crisis has stabilised the microfi nance sector.
However, the crisis has fundamentally changed the
microfi nance landscape in India with several
institutions unable to recover. In December 2011,
the RBI created a separate legal category for MFI’s
operating as non-bank fi nancial companies (NBFC-
MFIs), for which it issued prudential and nonprudential
norms and customer protection
regulations. This latest regulation complements
other post-AP regulations that introduced a
quantitative defi nition of microfi nance loans, a
ceiling on loan amounts and the number of loans
per customer, interest rate caps and margin caps.
Despite the volatility in India, three of the top
ten overall best performers are found in Asia.
Pakistan remained in third place, while the
Philippines rose to fourth (from sixth) and
Cambodia to eight (from 13th) from their previous
rankings in 2011. Vietnam and Thailand, however,
remain in the bottom. China, the largest untapped
microfi nance market in the world, moved up three
places to 36th out of 55 countries. Notably, both
Indonesia and Nepal were the fi rst and second most
improved countries in the index. Indonesia jumped
nine places to 24th, while Nepal improved seven
places to 44th. All Asian countries, except Sri Lanka
and Vietnam, improved their Supporting
Institutional Framework scores. Three of 12 Asian
countries improved their Regulatory Framework
Practices scores, with only India’s having decreased.