Global microscope on the microfinance business environment 2012

6
Executive
summary
The last few years have presented a series of
challenges and learning opportunities for the
microfi nance sector. During the last few decades
the microfi nance industry experienced substantial
growth, but eventually this resulted in market
saturation, a rise of non-performing loans and
multiple lending across a few key markets. The
global fi nancial crisis then increased the focus on
risk management, corporate governance and
regulatory capacity. Most recently, the Andhra
Pradesh microfi nance credit crisis that unfolded in
India has raised serious questions about the
viability of microfi nance as a valid development
modality.
The response to the Andhra Pradesh crisis has
centred on a renewed effort from the microfi nance
community to address the need for progress on
responsible fi nance measures. The responsible
fi nance movement has further refi ned client
protection principles, dispute resolution and
transparency, while donor-funded projects,
industry bodies, networks and individual
institutions are embracing these concepts.
Although it may take time to design and improve
functional systems, embed them in project and
organisational designs, and fully implement them,
it is an important step forward for the industry and
a sign of its growing maturity. Nevertheless, much
work remains to be done for microfi nance to reach
its potential in providing access to fi nancial
services to the unbanked, reducing poverty and
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
improving livelihoods.
The two outcomes of the recent fi nancial crisis –
an increased focus on responsible fi nance and
increased regulatory oversight – are refl ected in
the analysis in this year’s <strong>Global</strong> <strong>microscope</strong> on the
microfi nance business environment 2012. This
report benchmarks the regulatory and operating
conditions for microfi nance in 55 developing
countries globally. Commissioned and funded by
MIF, CAF and IFC, Microscope 2012 is the Economist
Intelligence Unit’s fourth annual effort to assign
ratings to microfi nance markets in these 55
countries. This also marks the sixth annual
assessment of markets in Latin America and the
Caribbean.
Covering the 12 months to June 2012, Microscope
2012 evaluates the sector across two distinct
categories: Regulatory Framework and Practices,
including legal recognition for microfi nance
institutions (MFIs), national regulatory and
supervisory capacity, policies towards deposits and
market distortions; and Supporting Institutional
Framework, especially fi nancial reporting standards
and transparency, credit bureaus, pricing, dispute
resolution, and policies for offering microfi nance
through new agents and channels. The index also
takes into account whether, and to what extent,
political shocks have affected the microfi nance
sector and general country conditions. To provide
further context for the model, we have included data
from the MIX Market that provides insight into the