Microfinancing gains ground across the globe

By EgovAsia Editors | Oct 1, 2009

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Governments are increasingly turning towards microfinance to empower low-income entrepreneurs, but the depth and breadth of their policies vary widely, according to a new global microfinance ranking from the Economist Intelligence Unit. The Global Microscope on the Microfinance Business Environment is the first attempt to evaluate the quality and effectiveness of national policies targeted at microfinance, which involves the lending of small sums to the working poor.

The Economist Intelligence Unit launched the first Microscope in 2007, covering only Latin American and Caribbean countries. It has been expanded this year to include Asia, Africa and the Middle East, with ratings and rankings for 55 countries in all. The study, commissioned by the Multilateral Investment Fund, the Corporación Andina de Fomento, and the International Finance Corporation, highlights those countries that have made considerable gains in expanding financing options for the poor, and identifies those that have further work to do. Peru, Bolivia and the Philippines captured the top three spots in this year’s index.

“Expanding the Microscope provides a unique window into the ways countries innovate in microfinance,” said Vanesa Sanchez, Research Manager for the Microscope at the Economist Intelligence Unit. “It considers industry practices and market development, and assesses formal legal frameworks. It should serve as a valuable tool for policy makers, industry practitioners, donors and investors alike.”

The index is based on evaluations of three thematic categories: 1) the legal and regulatory environment for microfinance; 2) the general investment climate, including business practices and standards among microfinance practitioners; and 3) the level of institutional development, as measured by competition levels, the quality of borrower information and the range of services available.

The study, and the evaluations that accompany it, show that governments use different strategies to recognize, integrate and develop microfinance as part of their financial sectors. As a result, the landscape for commercially sustainable, privately offered microfinance services varies markedly.