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

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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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2

3

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RESEARCH OBJECTIVE, SAMPLE

AND METHODOLOGY

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Research objective

To better understand the current and potential

role of Microfinance Institutions (MFIs) with

regard to serving small enterprises

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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

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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

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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

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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

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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

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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.

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SERVING SMALL ENTERPRISES:

INSIGHTS FROM MFIs

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3

For most MFIs, serving small enterprises is

part of their business strategy

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78%

6%

16%

Is serving small enterprises part of your strategy?

Yes No Not yet

N= 186

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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

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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

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Business

Development

Services

Market segmentation of small enterprises

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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

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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

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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

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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

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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

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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