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Role of MFIs in Serving Micro
and Small EnterprisesSurvey Results
May 2012
Publication
The survey results in this presentation are published in CGAP Focus Note 81: “Financing Small
Enterprises: What Role for Microfinance Institutions?” by Jasmina Glisovic and Meritxell Martinez
(July 2012).
For more information please visit: www.cgap.org/publications
2
Outline
Research objective, sample, and methodology
▫ Objective
▫ Regional distribution by institutional type
Understanding the difference between micro and small enterprises
▫ Informality levels of micro and small enterprises
▫ Women-led micro and small enterprises
▫ Growth from micro to small enterprises
Focus on serving small enterprises
▫ MFIs strategies: Why serving small enterprises?
▫ Growth trend of small enterprise portfolio
▫ Growth trend by region
▫ MFIs definition of small enterprises
▫ MFIs product offering
▫ Market segmentation of small enterprises
▫ Competition for small enterprise clients
▫ MFIs systems to serve small enterprises (staff/department/monitoring portfolio)
▫ Main challenges faced by MFIs
▫ Key success factors
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1
2
3
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RESEARCH OBJECTIVE, SAMPLE
AND METHODOLOGY
1
Research objective
To better understand the current and potential
role of Microfinance Institutions (MFIs) with
regard to serving small enterprises
5
1
Sample and research methodology
• Industry survey with over 350 MFIs conducted in Nov-Dec 2011 in 3
languages (French, Spanish, English)
• Quantitative and qualitative analysis of responses
• MFIs from 69 countries
6
EAP11%
ECA24%
LAC21%
MENA10%
SA13%
SSA21%
Sample distribution by region Commercial bank5%
Credit union/Financial
cooperative/SACCO12%
Microfinance bank16%
NGO/Foundation33%
Non-bank financial institution
31%
Rural bank3%
Institutional type
1
NOTE: ECA: Eastern Europe and Central Asia; EAP: East Asia and Pacific; LAC: Latin America and the
Caribbean; MENA: Middle East and North Africa; SA: South Asia; SSA: Sub-Saharan Africa.
Diverse regional distribution by institutional
type
7
0
5
10
15
20
25
30
35
EAP ECA LAC MENA SA SSA
Commercial Bank
Credit union/Coop
MF Bank
NGO/Foundation
NBFIs
Rural bank
1
NOTE: ECA: Eastern Europe and Central Asia; EAP: East Asia and Pacific; LAC: Latin America and the
Caribbean; MENA: Middle East and North Africa; SA: South Asia; SSA: Sub-Saharan Africa.
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UNDERSTANDING THE
DIFFERENCES BETWEEN MICRO AND
SMALL ENTERPRISES
2
Informality levels of micro and small
enterprises
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While small enterprises are more formal than micro, informality is
widespread in all regions with the exception of ECA.
N= 189
81%
60%
44%
58%
50%
24%
0% 20% 40% 60% 80% 100%
SA
EAP
LAC
MENA
SSA
ECA
SMALL
Up to 25% Between 25-50% More than 50%informal
88%
57%
88%
85%
85%
82%
0% 20% 40% 60% 80% 100%
EAP
ECA
LAC
MENA
SA
SSA
MICRO
Up to 25% informal Between 25-50% More than 50%
N= 206
2
informal informal informal informalinformal
(*) MFIs estimates
Women-led micro and small enterprises
10N=
Compared to micro enterprises, small enterprises are less often led by
women, specially in MENA and ECA.
0% 20% 40% 60% 80% 100%
MENA
ECA
LAC
SSA
SA
EAP
SMALL
WOMEN
MEN
N= 209 N= 192
0% 20% 40% 60% 80% 100%
MENA
ECA
LAC
SSA
SA
EAP
MICRO
WOMEN
MEN
2
(*) MFIs estimates
Growth from micro to small enterprises
11
40%
28%
18%
7% 8%
Less than 10% 10-20% 20-50% Over 50% Don't know
% of enterprises that grow from micro to small
N= 213
40% of MFIs said that less than 10% of their microenterprise clients grow to
become small.
2
SERVING SMALL ENTERPRISES:
INSIGHTS FROM MFIs
12
3
For most MFIs, serving small enterprises is
part of their business strategy
13
78%
6%
16%
Is serving small enterprises part of your strategy?
Yes No Not yet
N= 186
3
Growth trend of MFIs’ small enterprise
portfolio
14N=193
3
69%
21%
9%
Increasing Stable Decreasing
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N=193
Growth trend of MFIs’ small enterprise
portfolio by region3
79% 79% 78%
68%
55%50%
8%12%
18% 16%
23%
32%
13%9%
4%
16%
23%18%
EAP LAC SSA MENA SA ECA
Increasing
Stable
Decreasing
Why do MFIs serve small enterprises?
16
15%
17%
21%
35%
37%
69%
85%
Incentives from governments
Incentives from funders
Disbursement targets/pressure
Higher profitability
Increased competitions for micro clients
Following micro clients over time
Business growth opportunities
N= 150 Multiple answers
Main reasons
to serve small
enterprises
3
MFIs typically characterize small enterprises by
loan size
54%
33%
13%
Loan size Number of employees
Annual sales
Criteria used to define small enterprises (% of MFIs)
While “loan size” and “annual sales” differ by country/institution, “number
of employees” typically ranges from 5 to 30 workers, outside household.
N = 114
3
Most MFIs offer small business loans
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N= 235 Multiple answers
85%
71%
63%
49%
38% 37%33%
25%21%
17%
Microloan individualSmall business loanGroup loan Consumer loan BDS Deposit Insurance Payments Remmittances Overdraft
Types of services offered
3
Business
Development
Services
Market segmentation of small enterprises
19
29%
27%
22%
17%
5%
How do MFIs sub-segment the small enterprise market?
Economic sector (e.g., agriculture, industry, services)Geographic area (rural, urban)
Business profitability of enterprises
Revenue to the MFI
Other (e.g., gender)
N= 159 Multiple answers
3
Intense competition for small enterprise clients
20
N= 197
Very intense
44%
Somewhat intense
40%
Not intense
16%
Level of competition among financial service
providers serving small enterprises (% of MFI)
3
MFI systems to serve small enterprises
21
49%51%
Do you have a separate methodology for small enterprise
risk assessment? (% of MFIs)
Yes
No
24%
43%
49%
60%
71%
72%
0% 20% 40% 60% 80%100%
Rural bank
NBFIs
NGO/Foundation
Microfinance bank
Credit unions
Commercial banks
Separate risk methodology by institutional type
Yes
No
N=190
3
44% of MFIs do not monitor micro and small
enterprise portfolio separately
56%
44%
Do you monitor micro and small enterprise portfolio separately?
Yes
No
N=225
3
23
Most MFIs do not have dedicated
staff/department to serve small enterprises
N=201 N=202
3
39%61%
Do you have dedicated staff for small enterprise clients?
Yes
No
30%70%
Do you have a dedicated small enterprise department?
Yes
No
Main challenges faced by MFIs
Top three internal, external and enterprise-level challenges MFIs
face in serving small enterprises:
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INTERNAL EXTERNAL ENTERPRISE-LEVEL
• Lack of appropriate risk
assessment methodologies
• Management perceives segment
as too risky
• Inadequate MFI products
• Lack of MFI staff capacity to
analyze the business (e.g., loan
officers)
• Lack of internal processes (i.e.
MIS systems)
• High cost of operations
• High cost of operations
• Lack of demand for MFI
products by enterprises
• Restrictive regulations
(e.g., lending regulations, tax
regime)
• Lack of credit registry (i.e., credit
bureau)
• Judicial system (i.e., court
system)
• High competition (e.g., from
banks, other providers)
• Lack of basic infrastructure in
the country (e.g., roads and
electricity)
• Lack of financial statements
• Business are not registered
• Lack of collateral to secure the
loan
• No clear separation between
household and business accounts
3
Main challenges: What MFIs say…
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“Financial statements of small business are often not actual.” NBFI Manager, Armenia
“The main challenge is the presence of competitors including government institutions.”
NGO/MFI Chairman of Board and CEO, Iraq
“In most cases we are not able to serve small businesses as we cannot provide all services
they need. Even in the case of loans, since small business need larger loans with longer terms”
NBFI Credit Manager, Bosnia
3
Key success factors identified by MFIs
Client-focused approach
Commitment from top management and dedicated staff
Strong risk management
Flexible products and delivery
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Key success factors: What MFIs say…
“KYC approach is not enough, to successfully serve small enterprises you need to have a
BWYC (Be With Your Clients)” NGO/MFI Manager, the Philippines
“Deep insights and strong relationship with the client” NGO/MFI Executive
Director, Dominican Republic
“Having separate, dedicated units for serving micro and small enterprises” Commercial
Bank Manager, Kenya
3
We welcome your comments, questions and
examples.
CGAP contacts:
▫ Jasmina Glisovic jglisovicmeziere@worldbank.org
▫ Meritxell Martinez mmartinez1@worldbank.org
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Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org
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