MF Sector Operates Efficiently But Needs Product Diversity, States Bangladesh Microfinance Review August 2011

August 26, 2011 by

In the recently launched publication, Bangladesh Microfinance Review, August 2011, BRAC Development Institute (BDI) at BRAC University analyses data from 10 of the country’s leading microfinance institutions (MFIs) to conclude that while the sector has achieved operational efficiency, it needs to diversify its products in order to serve unmet demand for credit.
The MFIs scrutinised by the report include ASA, BRAC and Grameen – the three major players jointly controlling over 60% of Bangladesh’s MF sector – as well as seven mid-sized organisations, termed the Other 7 or O7, namely Buro Bangladesh, TMSS, Society for Social Services, Shakti Foundation, Uddipan, Padakhep and Jagorani Chakra. Data from 2009, the latest available during the writing of the report, is used and trend analysis is based mainly on figures from 2005 to 2009.
The document reports that microfinance coverage is extensive – statistics indicate 27 million borrower accounts – however, taking overlapping into account, the number of borrowers is better estimated at around 18.5 million. The average cost of servicing microloans in Bangladesh – about USD 14 – is one of the lowest worldwide. The sector’s staff productivity and operational efficiency is also high.
The review states that, with the industry’s USD 2.7 billion credit outstanding accounting for over 7% of the amount outstanding in the country’s entire financial system, the significance of the sector to financial inclusion is substantial.
It goes on to report that while some of the country’s MFIs are diversifying into micro-insurance and other services, the sector has been slow overall in adaptation of innovative products as compared to MFIs in other countries. Quicker uptake of new technologies, greater diversification and increased flexibility of loan terms and procedures will help MFIs fulfill the unmet demand for credit.
The report concludes that while portfolio yield has been stable in recent years (slightly above 23% and well below the Microfinance Regulatory Authority’s interest rate cap of 27%) and profitability performance of leading MFIs appears to be reasonable, the impact of the interest cap on availability microfinance services in less well-served areas and its impact on loan size remains to be seen.

 

The document’s launch event, held on the 25th of August in Dhaka, brought together key industry experts and practitioners as well as donors, investors, regulators and academics to discuss the emerging issues and future outlook of the microfinance sector in Bangladesh.
Criticisms of the report brought to light during the discussion included the study’s lack of focus on the demand-side issues of microfinance as well as several overstated figures, such as the employment generated by the industry and population covered. However, reviewers of the document acknowledged the barriers posed by the poor quality and long turnaround periods for data. The review was widely commended as a notable initial effort towards the creation of a periodic industry review and succeeded in generating valuable discussion on key issues and reinforcing the sector’s transparency and credibility.
Bangladesh Microfinance Review, August 2011 will be available for online viewing/download shortly.