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Charting Growth
February 3, 2010
By David Roodman Tags: drafts, industry buildingAfter being waylaid by work on Haiti, I am back to toiling on chapter 8. One section surveys the commercialization of microfinance and the financing of microfinance. Unlike most of the book, it is rich in figures and tables. Here I share them with you. I’d appreciate suggestions of what to change, drop, or add. What is confusing? Two disclaimers: My purpose here is to document trends without assuming that up is always good or always bad. And I should be able to add another year of data soon.
For me, the last display is most interesting.
Number of borrowers, 20 largest microfinance institutions of 2007
Source: Mix Market.
Number of savers, 20 largest microfinance institutions of 2007
Source: Mix Market.
Total amount of loans outstanding, SYM50 microfinance institutions, 2006–09 (million $)
Source: Syminvest. SYM50 is a group of 50 major investible microfinance institutions.
Number of microfinance investment vehicles, 2000–08
Source: CGAP.
Top 10 microfinance investment vehicles, end of 2008
Source: Reille and Glisovic-Mezieres (2009), CGAP.
Performance of Symbiotics Microfinance Index in dollar terms (SMX USD), 2004–09
Source: Syminvest. The SMX indexes the performance of a handful of microfinance investment vehicles (MIVs).
Foreign financing for microfinance by destination, 2008
Source: CGAP. First two columns are provisional.
Foreign financing for microfinance by source type, 2008
Source: Jasmina Glisovic-Mezieres, CGAP. See also.
The last one interests me because it shows something that had not been clear to me. Even today, the vast majority of the foreign primary investment going into microfinance—a term that excludes purchases of shares of the publicly traded BRI (Indonesia), Equity Bank (Kenya), and Compartamos (Mexico) on secondary stock exchanges—comes from people with two bottom lines, social and financial. The exceptions, those motivated by profit alone, are contained in the “private investors” row at the bottom of the table, where the numbers are small. Almost all the money still comes from people who care about the question of impact. This means that for all the talk of CDOs and IPOs and MIVs, for all the remarkable progress towards commercialization since the mid-1990s, microfinance is not yet predominantly commercial. The prevalence of social mission also means, happily, that my book is still relevant.
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5 Comments on “Charting Growth”
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February 3rd, 2010 at 3:54 pm
I would suggest cutting down the numbers of institutions used for the 20 largest borrowers and savers graphic. It’s a little busy. Instead of a graph showing the growing number of microfinance investment vehicles how about a graph showing the amount of money over time invested in those vehicles? I think that might be more useful as multiple small funds would then not bias the numbers one way or another. I like the tables on the sources of funds by type and destination but wonder if they would be better conveyed by a graph – or for the destination info a map with concentric circles showing the relative size of the inflows. Hope this helps!
February 4th, 2010 at 5:22 am
I second Jason’s point about the 1st two charts — spaghetti is better served with Ragu than with Excel. Surely there’s a better way to make the point you’re trying to get across — what about simply aggregating these same top 20 in a single line, or at least aggregate them by region? I mean I can see that Bandhan is growing faster than SKS early on, but this distinction gets lost in the tangle once you get past 2004.
The SMX chart is reminiscent of the LIBOR curve, which isn’t surprising given that a number of the MIVs comprising it target some sort of variable return benchmark (Dexia targets LIBOR explicitly, not sure about others). So you might want to add LIBOR to the graph. I’d go for either the 6- or 12-month USD rates as most suitable comps.
The last table isn’t correct. Unless they’re represented in one of the other categories, private investors have far larger numbers than indicated. Indeed, the CGAP source you’re using is largely a survey of DFIs and other public funders, and excludes most private MIVs. Compare this to the MIV table you have, and you’ll see what I mean. In general, I wouldn’t rely on the CGAP funder survey alone for what you’re trying to do — it’s very useful for what it is (a survey of public funders), but excludes the huge private finance component. You may have to manually combine data between the CGAP funder and MIV surveys to get a more accurate picture of total fundings, geographic distribution, etc.
Finally, I’d stay away from describing private investors as being motivated by profit alone (which is how I read the last paragraph). You’d find that many of the investors in the MIVs are indeed very socially motivated. Indeed, if you talk to some of these MIVs, you’d hear quite some grumblings that the IFIs are in fact less “socially motivated,” at least based on the types of projects they fund, the risks they’re willing undertake and the interest rates they charge. I don’t know enough to say whether this is true or false, but the perception is certainly there.
Ok, guess that’s enough commenting from me. Hope you find it useful…
February 4th, 2010 at 5:23 pm
Three striking points from the graphs for me, and then one anecdote.
1) There seems to be a cluster around 1,000,000 borrowers for most lenders. Is this a function of some maximum viable size with the usual business model?
2) Look at BRI and BRAC, two of the most unheralded programs that were huge far ahead of the newcomers, and have been at 3-5,000,000 borrowers since 1996.
3) Note the INCREDIBLE number of depositors that BRI has (and to a lesser extent BRAC).
Anecdote: I worked with the World Bank in Indonesia back in the late 1980s and early 1990s, when BRI’s microcredit program was already booming. During that time, I tried repeatedly to lend BRI $100 million at subsidized rates to expand their microcredit program. BRI’s answer: “No thanks, that would screw up our discipline.”
February 5th, 2010 at 5:17 am
Thanks Daniel for your good observations on the CGAP funder survey and MIV survey data. I will try to clarify this further. The CGAP funder survey looks indeed only at primary sources of funding, not at intermediaries, such as MIVs, apexes and other wholesale facilities. Last year, 61 private and public donors and investors have provided data for the funder survey and we estimate that we capture around 75-80% of cross-border funding committed to microfinance with this survey. We do know though that this survey only captures a fraction of funding from individual and private institutional investors. This is why we also do a survey with MIVs, given that much of the funding from these sources is channeled through MIVs. So basically we use two different approaches to get a more comprehensive (but still incomplete) picture of the funding landscape. Based on our latest MIV survey we estimate that MIVs have $ 6.6 billion assets under management. Looking at both surveys together, we see that part of these $ 6.6 billion come from funders included in the funder survey. For example, many development finance institutions (DFIs), included as primary sources in the funder survey, channel part of their funding through MIVs. In addition to that, we estimate that at least $ 3 billion of MIV’s assets under management are provided by additional sources, mostly by institutional and individual investors.
For the first time last year, we included questions on ESG (environment, social and governance) indicators in the MIV survey. We found that 61% of the MIVs report ESG information to their investors, and 65 percent have staff trained in these issues. This supports Daniel’s point about MIVs being socially motivated.
February 5th, 2010 at 11:34 am
Thanks everyone for the excellent comments. This is the closest I’ve come to crowd-sourcing.
I get the message about the first two graphs: they must go. I was trying to follow Edward Tufte’s admonition to create a super-graphic rich with information, which would invite the reader to explore. But it’s clearly not working. I suppose it’s partly because the information in the lines is not that interesting: was small, now bigger.
Daniel, as Barbara explains, a lot of the money in microfinance investment vehicles comes from public sources, mainly development finance institutions (DFI) such as the IFC, so there is no obvious contradiction among the tables.
I did not mean to imply that all private microfinance investors are purely profit-seeking, only that the purely profit-seeking ones are contained in the private investor row of the table on flows by source type. So that puts a tight upper limit on the role of purely commercial capital in microfinance at present. I agree that DFIs can be pretty conservative and commercial in their behavior. Yet if the consensus were that microcredit is as bad for people as cigarettes, would the DFIs still invest in it? I doubt it. On the contrary, they are attracted to microfinance in part because of its reputation for doing social good. So fundamentally, I think the DFI capital going to microfinance is motivated by social mission as well as profit.
Dennis, I had heard the World Bank tried to lend to BRI. Funny that it was you (among others, I am sure). I was also told that USAID worked to block this for precisely the reason you gave. They played an important role in helping BRI transform into a viable microfinance institution.