Global microscope on the microfinance business environment 2012

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l Countries with a strong institutional
framework for microfi nance (as defi ned by the
Microscope) tend to reach more borrowers
than countries with weaker institutional
conditions. This observation especially holds
true for countries with transparent pricing
regulations and good dispute resolution
mechanisms. The institutional framework
category regressions demonstrate that the
strongest link exists between the Microscope’s
“input” variables and the collected “outcome”
variables. Owing mainly to the indicators in the
institutional framework category, the overall
Microscope is signifi cantly positively associated
with country-level penetration variables (that
is, number of MFI borrowers as a share of total
population, and as a share of poor population),
average loan portfolio size of MFIs at the
country level (from the MIX), and the overall
loan portfolio size of individual MFIs (also from
the MIX).The Microscope’s client protection
indicators are also associated with larger
average loan sizes and lower impaired loan
shares at an MFI level.
l Regulatory capacity is also positively
associated with microfi nance penetration
measures and with loan sizes. Other indicators
measuring the strength and quality of
microfi nance regulations do not seem to
correlate as strongly with penetration,
suggesting a minimal association with the
development of the microfi nance sector.
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
l Better regulatory frameworks are positively
associated with larger loan sizes, more gender
diversity in clientele, and lower shares of
portfolio at risk. This relationship is not causal,
however, as growth in loan sizes, client base and
reduced risk could lead to regulatory reforms
just as easily as they could be the result of
positive reform.
Future research will use instrumental variables
estimation approaches to explore some of the
associations found thus far in more detail, and to
see if they should be interpreted as causal. That is,
do improved scores on the index lead to
penetration gains and improvement on other
microfi nance outcomes, or do index scores increase
as a result of improved performance and greater
penetration? If the former is true, policymakers
could more actively pursue improvements in the
microfi nance business environment. If the latter
holds, policy advice could be tailored to ensure
that the business environment, especially
components related to regulation and supervision,
are well tailored to the level of development of the
microfi nance sector in a country. At the very least,
however, these signifi cant associations indicate
that the 2011 Microscope is appropriately tracking
variation of microfi nance development across
countries and institutions.