The term "microfinance" is often used to express loans and other services from providers that identify themselves as microfinance institutions (MFIs). "More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality financial services to finance their income-producing activities, build assets, stabilise consumption and protect against risks"  . The main idea of the concept of microfinance is to enable the poorest people in developing countries to gain access to financial services. Microfinance creates financial markets and builds structures in isolated, forgotten regions and some banks are buying off a whole scale of portfolios or numbers of microfinancial institutions nowadays.
The main aim of my work is to compare the utilization of microfinance in Africa and Asia. It is said that Asia is the most developed continent in terms of volume of MFIs, so I would like to find out why it is so and why Africa gets behind. As I am going to do microfinance comparison in Africa and Asia, I definitely have to use comparative methodology in my work using microfinance indicators such as number of active borrowers, return on equity, return on assets etc.
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In first chapter of my work I would like to describe the utilization of microfinance in general. In this part I will define the sector of microfinance placing emphasis on MFIs. I would like to outline the situation concerning the microfinance in Sub- Saharan Africa as well.
Second chapter of my work will devote to the utilization of microfinance in Asia. Firstly, I will describe economic situation in Asian countries, in general. Then I will sketch out something more about MFIs in Asia.
In third and last chapter of my work I will compare MFIs in Africa and Asia via microfinance indicators. I will divide indicators into five core areas which are usually used to measure performance of MFIs.
The concept of microfinance is surely a good idea which can be proved by the fact the concept has become one of many priorities of the United Nations and nowadays it is part of the Millennium Development Goals (MDGs)  as an instrument for poverty reduction. Moreover, the year 2005 was proclaimed as the International year of Microcredit.
In general, the concept of "microfinance" brings lots of advantages such as the improvement of socio-economic conditions of people in developing countries, new experience and capabilities or the growth and continuity of incomes. On the other hand, there are lots of negative opinions and criticism involving the fact, that microfinance is not for all people. There are countries, where microfinance is determined for people, who have already had their bank accounts or own possession. In their opinion, microfinance is not self-sufficient and it is not possible to sustain it without subsidies. Some people also say that poor people buy themselves a job via microfinance.
Microfinance in Africa
Africa in general
While talking about Africa in general, it is necessary to say that it is the second largest continent and the second most populous continent in the world. According to the United Nations Development Programme (UNDP), Africa had the population of about 964.5 millions in 2007  . Except of its huge total area or the number of population, there is another feature Africa is usually associated with. The African continent is considered the worldÂ´s poorest continent. High population growth rate, low consumption, indebtedness, low scale of education or health care, problems with AIDS or infant mortality are the biggest problems, African countries have to face to every day. In Sub-Saharan Africa, the proportion of people living on less than $1.25 a day was 51% in 2005  . In the same year, there were 34 from 50 least developed countries in the world coming from Africa  . And of course, the situation has not improved so significantly since that. The problem of extreme poverty that can be found in many African countries has lots of negative impacts such as the fact that every three seconds a child dies of extreme poverty and AIDS, often before their fifth birthday. (The map bellow shows the least developed countries in Africa).
Always on Time
Marked to Standard
Map 1: The Least Developed Countries in the World Coming from Africa in 2005
Source: Measuring Progress in Least Developed Countries: a statistical profile 2006, p. 8.
Africa could never solve its problems alone. That is why, lots of states, governmental or non- governmental organizations support the African continent with financial, material and other resources. As far as the European Union (EU) concerned, there was an amount of EUR 4,003 million detached in terms of the Official Development Aid (ODA) devoted to the African continent  . Within the Tenth European Development Fund covering the period from 2008 to 2013, the European Union provides the amount of EUR 21Â 966 million to the African, Caribbean and Pacific countries (ACP).
The utilization of microfinance in Africa
Concerning small enterprises or most of the poor population in Africa, there is a very limited access and insufficient possibilities to deposit, credit facilities and other financial services which are provided by formal financial institutions. This can be regarded as a very serious problem, considering the fact that poor people represent the largest share of African population and that the informal sector is a very important part of the economy. One of the ways to meet unsatisfied demands for financial services can be the cooperation with MFI. There has been set up a lot of MFIs in Africa, so far. Some of them focus only on providing credit or deposit collection, others concentrate on providing both deposit and credit facilities. Institutions offering microfinance services in Africa are very diverse, including commercial banks, state-owned development banks or postal offices.
There are several reasons why poor people appreciate the availability of liquid and secure financial vehicles for savings. "First, such savings help poor farmers to smooth their consumption expenditures between lean and peak harvesting seasons and provide a cushion against income fluctuations caused by exogenous shocks. Second, savings could be used to pay for inputs needed at the start of production processes, and self-finance future investments or leverage supplementary financing for them. Third, saving deposits also provide a convenient vehicle for setting aside money for such costly future events as weddings, children's education, and funerals"  .
Microfinance institutions in Africa
According to the Microfinance Information Exchange, there were 195 MFIs  in Africa in 2008  . One year before, Magazine Forbes made a survey concerning 50 Top Microfinance Institutions and only 8 from those 50 institutions came from Africa  . Nevertheless, African microfinance sector has become a dynamic marketplace and the number of borrowers and savers is still increasing. (A following chart shows an increasing tendency in microfinance sector in Africa.)
Table 1: Volume Figure Trend Data in Africa in 2007
Loan Portfolio (USD Mil)
Savings (USD Mil)
Source: Africa Microfinance Analysis and Benchmarking Report 2008, p. 2.
It is necessary to say that the previous chart provides the information about Africa in general. However, there are several differences among particular African regions in both lending and deposit services. As far as the Eastern and Southern regions concerned, there was the greatest growth in both borrowers and savers. Concerning the Central region, there was aÂ decrease in number of borrowers. On the other hand, West Africa experienced growth, but on a much smaller scale, likely due to much higher penetration rates in this region. While talking about the best ten countries  with the greatest penetration rate of both borrowers and savers, there were 5 countries located in the West Africa. That indicates the fact, that the microfinance sector is more successful in West Africa than in other regions  . If we talk about the market involving institutions which provide financial services, we can definitely say that there is a highly segmented market with different types of institutions. As an example, banks served most clients in the Southern region, with 81% of the borrowers. NGOs served 13% of clients and non-bank financial intermediaries comprised the remaining 6%. Moreover, each institutional type served different products. On the other hand, deposit taking institutions, such as cooperatives, banks and rural banks, had the broadest outreach in West Africa. In addition, the region serviced twice as many savers as borrowers  .
Sub- Saharan Africa and microfinance
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As far as Sub-Saharan Africa concerned, there are lots of countries which have included MFIs implicitly or explicitly in their banking legislation, renewed non-banking financial institution legislation or implemented specialized microfinance laws and regulations. Moreover, many countries  have passed new or revised microfinance legislation or have adopted national microfinance strategies since 2002. There are only a few countries which have not accepted new laws or regulations covering the microfinance sector  . It is possible to say that the microfinance sector has become much more efficient and successful (not only in Sub-Saharan Africa). One of the main reasons for increasing efficiency is considered placing the supervision of MFIs under the same body that supervises banks and other financial institutions.
Talking about Sub-Saharan Africa, there also countries that impose different regulations for different categories of financial institutions (e.g. credit-only institutions, deposit-taking institutions etc). On the other hand, some countries differentiate between institutions only partially or the others make no difference between them. Notwithstanding, governments are focusing their attention on regulating microfinance more. However, their attention on consumer protection is more or less insufficient, in general.
Map 2: Microfinance Regulation by Country
Source: Africa Microfinance Analysis and Benchmarking Report 2008, p. 4.
In 2007, funders had total commitments of $1.76 billion, covering 716 projects in all Sub-Saharan countries. In general, projects were funded from a wide range of funders, though most were non- commercial using public money, less private funds that typically have more of a commercial orientation. Funding within Sub- Saharan Africa is not the same in all its parts. The worst situation concerning funding is in Central and Southern Africa. On the other hand, Eastern Africa and certain countries in Western Africa have much larger number of financial access programs  . On account of a following chart, there are 3 categories of the financial system, funderÂ´s activities were distributed in 2007 among. As we can see in the following chart (number 1), the biggest portion belongs to retail institutions. It means that funders preferred retail institution projects to the financial infrastructure (market infrastructure or services such as auditors, rating agencies, information technology, credit bureaus etc.) or to policy environment (interest rate regime, tax issues, national strategies etc.). Most of all policy projects were supported by two or more funders, mostly multilateral or bilateral donors  .
Chart 1: Categories of the Financial System
Source: Africa Microfinance Analysis and Benchmarking Report 2008, p. 8.
Funders apply different funding instruments such as grants, loans, In-Kind, equity, guarantees and others. Regarding bilateral funders or international NGOs, they mainly preferred grants in 2007, while Development Finance Institutions, private foundations or multilateral funders preferred loans. African MFIs are characterized by their diversification in terms of microfinance models or types of MFIs. Usually MFIs are small; they do not exist for a long time and are dependent in many cases on financial resources of humanitarian organizations. In general, we can say that the microfinance sector in Africa has improved in regulation, funding, growth or performance so far. Even though, there is still a lot of imperfection.
Microfinance in Asia
Asia in general
Asia is the worldÂ´s largest and most populous continent. In 2007, the total population was about 4029, 3 millions  . The continent is politically, religiously, culturally or geographically very diverse. From economic point of view, the region is very heterogeneous too. According to the United Nations Development Programme, there are countries with very high human development (Singapore, Hong Kong, Kuwait etc.), with high human development (Bahrain, Oman, Malaysia etc.), with medium human development (Armenia, Azerbaijan, China, India etc.) as well as with low human development (East Timor or Afghanistan). As far as the worldÂ´s least developed countries concerned, there were 15 least developed countries from 50 coming from Asia and Oceania in 2005.
Map 3: The Least Developed Countries in the World Coming from Asia and Oceania in 2005
Source: Measuring Progress in Least Developed Countries: a statistical profile 2006, p. 9.
While talking about Asia, it is necessary to mention, that there are located three so called BRIC countries- Russia, India and China  , which are considered as the fast-growing developing economies. According to the document edited by Goldman Sachs from 2003, over the next 50 years, the BRICs economies could become a much larger force than the G6 in US dollar terms on account of GDP growth (Gross Domestic Product), income per capita or currency movements. By 2025, they could account for over half the size of the G6. Of the current G6, only the USA and Japan may be among the six largest economies in US dollar terms in 2050  . Moreover, except of BRIC countries, it can be also useful to mention newly industrialized countries known as Four Asian Tigers. This term refers to the highly developed economies with rapid industrialization between the early 1960s and 1990s. Hong Kong, Singapore, South Korea and Taiwan are considered as Four Asian Tigers. Nowadays, there are other Asian economies experiencing faster economic transformation (Philippines, Malaysia, Indonesia or Thailand etc.). Due to much more favourable economic conditions and situation in many Asian countries, it is possible to say that the position of "Asia" in the world economy is much better than the African position.
Nevertheless, there are still serious problems including economic, political or social problems, Asia has to face up everyday too. That is why, lots of international organization, NGOs and other actors try to help solve those problems by financial, material and other support. Regarding the European Union, in 2008 there was the amount of EUR 1,850 millions detached in terms of ODA to the Asian region  .
The utilization of microfinance in Asia
Asia is considered the most developed continent in the world considering the volume of microfinance activities. According to the document Distribution, Growth and Performance of MFIs in Africa, Asia and Latin America  , Asia accounted for the majority of MFIs, retained the highest volume of savings and credit and served more members than any other continent. Microfinance in Asia dominates the global market with rapid growth and massive scale. In 2007 there were 21 Asian institutions ranked in the Top 50 Microfinance institutions, according to Forbes Magazine.
Talking about great developed microfinance sector in Asia including MFIs, it is necessary to mention, that there are quite huge disparities within Asian region. East Asia is generally well served by MFIs. The largest number of members served and the largest distribution of loans and mobilization of savings in terms of Gross National Product (GNP) is found in Bangladesh, Indonesia, Thailand and Vietnam. On the other hand, two most populated countries in Asia, India and the PeopleÂ´s Republic of China have very low outreach, despite a high concentration of the poor regions. Countries such as Afghanistan, Myanmar and Pakistan also have low outreach due to a variety of factors  .
Loan portfolios for microfinance in Asia
In 2007, loan portfolios for Asian MFIs grew quickly compared to a global portfolio growth of 50 % in USD terms during the year. As we can see in the following table (number 2), India disposed of the biggest number of MFIs, while Bangladesh had the biggest number of borrowers  .
Table 2: Volume Figure Trend Data in Asia in 2007
Gross Loan Portfolio (USD Millions)
Deposits (USD Millions)
Papua New Guinea
Source: Asia Microfinance Analysis and Benchmarking Report 2008, p. 2.
Over the period, the gross loan portfolio in Asia grew at more than 60 %, adding 2.4 billion USD for surveyed MFIs. Talking about the share of loan portfolio in South Asia, the biggest portion created Bangladesh with 48% and India with 41%. In the region of East Asia and the Pacific, there was Indonesia with created 64%. Second biggest portion of the share of loan portfolio in this region created Vietnam with 21%  . Asian MFIs served more than 47 million borrowers, reachÂing two-thirds of global borrowers. Moreover, the outreach of borrowers, which has been supported by strong lending efficiency as well as high staff productivity, seemed to have similar growth trends across the region. However, South Asian markets displayed higher concentration of outreach in markets than did the markets in East Asia. By contrast, East Asian markets disposed a greater number of small and medium scale service providers and MFIs in this region used to dispose of existing regulatory environments much more. However, there was a notable breadth of outreach gained by MFIs. There was also a lack of access to basic financial services for many potential clients in Asian countries in 2007.
Asian MFIs depended mainly on commercial financing. Concerning commercial borrowings, it was provided more than 75 % of new loan funds in 2007, bringing total financing from commercial borÂrowings to nearly 50 % across both South Asia and East Asia and the Pacific. Commercial debt provided the largest pool of funding for the loan portfolio. Due to positive, stable returns and strong growth opportunities in large markets across, the region attracted new funding for MFIs. Nevertheless, we can say that MFIs funded their lending activity via several forms of debt depending on local markets and legal structure. As we can see in the following chart (number 2), most institutional types relied on borrowings for debt financing. As far as rural banks concerned, they assembled a huge portion of their obligation directly from their clients through retail deposits  .
Chart 2: Debt Structure in 2007
Source: Asia Microfinance Analysis and Benchmarking Report 2008, p. 6.
Returns on assets remained stable across the region, which attracted and retained new funding for portfolio in 2007. There some countries which experienced higher and better returns on assets, such asÂ Afghanistan or Cambodia.
In general, it is possible to say, that the microfinance sector in Asia is considered definitely the best compared to microfinance sectors in different continents and regions. It disposes of admirable scale outreach and tight operating cost. Interest rates are usually very low. There are lot of small MFIs which are very popular with society. That is why Asia offers great opportunities for the expansion of existing institutions within the region.
Comparison of microfinance in Africa and Asia
MFIs are usually assessed and compared on account of microfinance indicators. As microfinance indicators are considered e.g. a number of borrowers or savers, return on equity, return on assets, return on investments, yield on portfolio, legislative facilities, risk management, portfolio at risk, current recovery rate, operating expense ratio or cost per client. These indicators can be divided into five core areas for measuring performance of MFIs: outreach (concerning the number of clients served), client poverty level, collection performance (indicating how well the MFI is collecting its loans), financial sustainability (relating to a profitability of the MFI) and efficiency or in other words - the ability of the MFI to control its administrative costs. In general, Asia is considered the most developed continent in terms of volume of the activities of MFIs that can be clearly seen in the following part of my work.
As I have already said, the core area "outreach" concerns about "the number of clients or accounts that are active at a given point in time  ". It is much better to use this indicator than the cumulative number of loans made or of clients served during a period because it counts active clients rather than members in order to reflect actual service delivery. The higher the number of clients served is, the better results the MFIs can dispose of. Even though, strong expansion can be sometimes unsustainable, especially during MFIs early years when it needs to design its products and build its systems.
According to the publications made by the leading business information provider Microfinance Information Exchange, it is possible to claim that there were much better outreach indicators in Asia than in Africa in 2008. Although, it is necessary to realize that given benchmark results are the results made for groups of institutions - peer groups - sharing common characteristics such as region of size or operation. Moreover, the results represent an arithmetic mean of the given information. Nevertheless, as we can see, Asia had much higher number of active borrowers as well as the number of deposits on average, in 2008. The reason could that Asia has higher population and lots of people try to solve their problems via microfinance. Moreover, higher percentage create women borrowers which can be connected with the fact that women are more responsible, they take less risks in general and do not leave families.
Table 3: Outreach Indicators in Africa and Asia in 2008 (in arithmetic mean)
Number of Active Borrowers
Number of Deposits
Average Loan Balance per Borrower (US$)
Average Deposit Balance per Depositor
Percent of Women Borrowers
Source: MicroBanking Bulletin: 2008 Benchmarks.
Client poverty level
The client poverty level says how poor particular clients of MFIs are. In general, there are several techniques for measuring this level, some of them are quite expensive and complicated, others are simpler, but as yet there has been no widespread agreement on any one of them. Usually, average outstanding balance is used for measuring poverty level, given the gross amount of loans or savings outstanding divided by number of active clients or accounts. Average outstanding balance is related to client poverty, because rich clients are usually not interested in smaller loans. However, low loan sizes do not warrant a poor clientele. Growth in average loan size does not necessarily mean that MFIs are suffering so called mission drift, as well. Funders who want to reach very poor clients should usually seek for institutions which have already been committed to a low-end clientele, rather than trying to encourage higher-end institutions to change their market. 
As far as an average outstanding balance in Africa and Asia concerned, benchmarks in these two countries were following. In Africa there was an average outstanding balance US$ 653, while in Asia there was a benchmark US$ 469. As I have already said, the indicator expresses poverty level of clients. So, according to given benchmarks for Africa and Asia, there is a lower poverty level in Asia than in Africa which could in accordance with MFIs means that there are poorer clients in Asia seeking for institutions.
If we want to assess MFIs, it is necessary to report loan collection. "Therefore, whenever any measure of loan repayment, delinquency, default or loss is reported, the numerator and denominator of the ratio should be explained precisely  ". There are several indicators which are usually used in context of the area of collection performance. The standard international measure of portfolio quality in banking is portfolio at risk (PAR) beyond a specified number of days. 30 days is considered a common breakpoint. Other MFIs, which do not use PAR indicator because they do not have loan tracking system strong enough should be able to calculate loans at risk (LAR). LAR indicator is considered simpler as it just counts the number of loans (instead of their amount). Moreover, there are alternative indicators such as current recovery rate (CRR) or annual loan- loss rate (ALR). "As a rough rule of thumb when dealing with uncollateralized loans, Portfolio or Loans at Risk (30 days or one payment period) above 10%, or Annual Loan-Loss Rates above 5%, must be reduced quickly or they will spin out of control"  .
As we can, there was higher percentage in both indicators - portfolio at risk for 30 days (endangered loans which are not repaid after 30 days) and portfolio at risk for 90 days in Africa. It can mean that Africa has much untrustworthy environment in terms of the ability of institutions to gain their lent financial resources. That fact could be caused by inappropriate product setting or inefficient preventive politics of particular institutions.
Table 4: Indicators of Collection Performance in 2008 (in arithmetic mean)
Portfolio at Risk > 30 Days (%)
Portfolio at Risk > 90 Days (%)
Loan Loss Rate (%)
Risk Coverage Ratio (%)
Source: MicroBanking Bulletin: 2008 Benchmarks.
Financial sustainability (profitability)
The area of financial sustainability concerns about the fact, if the MFI is profitable enough to maintain and expand its services without continued injections of subsidized donor funds. Measures which are usually used by banks or commercial institutions to find out the returns of profitability are return on assets (ROA), metering the returns produced for the owners, return on equity (ROE) or other subsidy- adjusted indicators such as financial self-sufficiency (FSS), adjusted return on assets (AROA) and the subsidy dependence index (SDI).
Table 5: Indicators of Financial Sustainability in 2008 (in arithmetic mean)
Return on Assets
Return on Equity (%)
Operational Self-Sufficiency (%)
Financial Self-Sufficiency (%)
Profit Margin (%)
Yield on Gross Portfolio (nominal) (%)
Yield on Gross Portfolio (real) (%)
Source: MicroBanking Bulletin: 2008 Benchmarks.
According to the previous table, we can see that there is much better situation in terms of ROA indicator in Africa than in Asia (that can be surprising). Based on this indicator, it is possible to claim that African MFIs have better outlook of future development, they are financial healthier and they are able survive in competitive struggle. The reason for better "African" results could be that African MFIs are overwhelmingly expanding nowadays, even in new areas and they are more able to reach economy of scale (serving more clients with low loans) that can results in higher profits. (Other indicators in the table 5 are just informative.)
The last but not least core area of indicators is efficiency. It concerns about how well the MFI controls its administrative costs. The most commonly used indicator expresses non-financial expenses as a percentage of the gross loan portfolio (Operating expense ratio). Sometimes, more efficient and preferable alternative instead of the indicator of operating expense ratio is a ratio based on clients served (not amounts loaned). That is why we talk about the cost per client.
Table 6: Indicator of Efficiency in 2008 (in arithmetic mean)
Administrative Expense/ Assets
Operating Expense/ Loan Portfolio
Cost per Borrower
Cost per Loan
Gross Loan Portfolio
15 839 989
30 267 802
Source: MicroBanking Bulletin: 2008 Benchmarks.
As we can see, administrative expenses in relation to assets or operating expense relate to loan portfolio are lower in Asia than in Africa. That can be caused by higher number of clients (that leads to the economy of scale when fixed costs are divided into higher number of clients served). More than 40% of operating expense related to loan portfolio means that almost a half of the assets determined for the activity connected with providing loans is used for costs. This fact can very negative influence the sustainability of MFIs. As a solution could be a further expansion to the new markets. As far as cost per borrower or cost per loan concerned, there are higher amounts in Africa too, while gross loan portfolio is almost twice- higher in Asia.
Africa and Asia together
The sector of microfinance is very dynamic, diverse and becoming more and more important. However, compared to Asian microfinance sector is much newer with less experience. Savings create substantial part of financial services. Clients are usually served by products which are connected with too high costs. Nevertheless, the number of clients borrowing higher amounts has increasing tendency (especially in cities). On the other hand, lots of MFIs lose their clients due to institutional or macroeconomic changes. Negative features are also considered financial sustainability or profitability of MFIs which have too high operational expense due to bad infrastructure or high costs related to skilled labour.
Asia is undoubtedly and deservedly considered the most developed continent in terms of the volume of MFIs. There is higher number of active borrowers compared to others continents, higher level of deposits or providing loans. One of many reasons could be the fact that Asia is closely connected with first forms of modern microfinance. This way of gaining financial resources have become very popular with Asian poor population. Nevertheless, microfinance market which has lots of particularities (compared to other continents) is very uneven. The most MFIs can be traditionally found in Bangladesh, Vietnam or Indonesia. Asian MFIs focus mainly on the poorest population. A very effective instrument could be considered a considerable interest of Asian governments in MFIs with the aim of reducing financial barriers and making microfinance more available for the poorest people.
As far as my opinion of the concept of microfinance concerned, I consider just the idea as a great way to fight against poverty, although there is a lot of criticism. A bulk of poor households all over the world lack access to institutional financial services due to denying poor clientele for reasons of high risks perceived or insufficient marketable collateral for loans. And thanks to microfinance, lots of poor people can get small loans for setting up their own "small" business.
First forms of modern microfinance are connected with Asia. And it is Asia nowadays, where the microfinance sector is considered the most developed compared to any other continent including Africa. Asian MFIs have much better benchmarks than African MFIs. Although, concerning the ROA indicator which is better in Africa, it possible to say that African MFIs have better outlook of the future development, they are financial healthier and they are able survive in competitive struggle.
African microfinance sector is newer compared to Asian sector but it is still developing and expanding very dynamic. There can be seen one of many reasons why Asian microfinance sector is the best. It has longer tradition. Asian MFIs are able to serve poorer clients with products and loans charged by low interest rates. The networks of small MFIs is very dense, MFIs are located near important cities and people do not have to cross long distance to get there (which means that costs for travelling are lower too). On the other hand, African MFIs are very diverse regarding the forms or types of MFIs. They are much more dependent on financial resources of humanitarian organizations, they have higher operational or administrative expense and clients are usually served with microfinance products charged by higher interest rates.
However, as I have already said, African microfinance sector is still developing and has a really increasing tendency, that is why it is possible that one day African and Asian microfinance sector will be comparable.
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