Table of Contents
Introduction
According to Microfinance Statistics, Microfinance is a transformative financial tool designed to empower underserved individuals and communities by offering tailored services such as microcredit, microsavings, and microinsurance.
Its historical evolution, from informal savings groups to modern microfinance institutions, has culminated in global recognition, exemplified by Muhammad Yunus and the Grameen Bank’s Nobel Peace Prize. It is a compass for policymakers, financial institutions, and development organizations to gauge impact, make informed decisions, and foster financial inclusion and poverty alleviation.
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- As of 2020, the microfinance sector served 200 million borrowers, with a significant majority being women.
- Approximately 65% of these borrowers reside in rural areas where traditional banking services are limited or unavailable, making microfinance a critical source of financial support.
- The industry has demonstrated robust growth, boasting an annual expansion rate of 11.5%.
- The largest microfinancing market in the world is in South Asia, which recorded 85.6 million borrowers in 2018.
- In 2021, the Small Business Administration issued 4,510 microloans to small businesses, with an average loan size of $16,557.
- Astonishingly, over two billion people globally lack access to essential financial services, and less than 20% of borrowers in developing nations secure their loans from conventional financial institutions.
- In 2022, microlending and other financial inclusion initiatives were instrumental in advancing seven out of the United Nations’ 17 Sustainable Development Goals.
- During that year, over 1.4 billion individuals benefited from the services provided by the microfinance sector. Among them, more than a million individuals were in dire poverty when they accessed these financial resources.
Historical Evolution of Microfinance
- In the early 20th Century, credit unions and rural banks began to provide financial services to underserved communities.
- During the 1970s, modern microfinance started with pioneers like Muhammad Yunus and the Grameen Bank, offering small loans to impoverished individuals.
- In the 1980s and 1990s, microfinance gained global recognition, with organizations like ACCION and FINCA expanding operations.
- In the 2000s, increased scrutiny led to regulation and responsible lending practices in the microfinance sector, and microfinance expanded beyond microcredit to offer savings, insurance, and remittance services.
- Finally, in the 21st Century, digital technology and fintech solutions revolutionized microfinance, enabling broader access to financial services.
Global Performance of Microfinance Institutions
- Starting in 2017, microfinance institutions (MFIs) have extended loans worth hundreds of billions of dollars, with an annual growth rate averaging 11.5% over the past five years.
- During this time, the global count of borrowers continued to climb, albeit slower than the 2000-2010 era, with an average yearly growth rate of 7% since 2012, in contrast to the nearly 20% seen in the prior decade.
- In 2018, about 139.9 million individuals received the benefits of MFI services, marking a significant upswing from the 98 million borrowers in 2009.
- Among these borrowers, 80% are women, and 65% hail from rural areas. These proportions have remained stable over the last ten years, even with the growing borrower numbers.
- In 2018, MFIs oversaw a credit portfolio estimated at $124.1 billion, signifying another year of expansion, with an 8.5% increase compared to 2017.
Microfinance as an Institutional Success
- Over a decade, from 2003 to 2013, there was a notable progression in the outreach and impact of microfinance, reflected in the increasing numbers of borrowers served, particularly among the poorest segments of society.
- In 2003, microfinance institutions (MFIs) reached 81 million borrowers, with 55 million categorized as the poorest.
- This upward trend continued, with 2013 witnessing substantial growth as MFIs extended their services to 211 million borrowers, of which 114 million were among the poorest.
Microfinance in Small Businesses
- From 2016 to 2020, the Small Business Administration (SBA) approved many microloans, demonstrating a consistent commitment to supporting small businesses.
- In 2016, 4,506 microloans were approved, amounting to $61.2 million.
- By 2020, the SBA had further expanded its efforts, approving 5,890 microloans with a cumulative value of $85.0 million.
Demographics of Microfinance
Distribution of Microfinance According to Gender
- In Africa, despite women constituting over 60% of the rural workforce and contributing significantly, up to 80%, to food production, their access to credit remains disproportionately low, accounting for less than 10% of the total loans extended to farmers.
- Interestingly, while it may seem that women are the primary beneficiaries, studies indicate that men utilize a considerable portion of loans that women have awarded and repaid.
- The renowned Grameen Bank in Bangladesh, which has been widely emulated, primarily offers credit to those living in extreme poverty. Remarkably, approximately 94% of individuals who meet the bank’s criteria and avail themselves of loans are women.
Distribution of Microfinance According to Income
- The World Bank’s assessment reveals the presence of over 7,000 microfinance institutions (MFIs) worldwide, dedicated to assisting approximately 16 million individuals in impoverished regions of developing nations.
- These MFIs collectively handle a substantial cash turnover, estimated at around US$2.5 billion, underscoring the significant potential for further expansion in this sector.
- Accion, a prominent MFI with operations in the United States, contrasts its microloans in the U.S., which have an average income of approximately $10,000 and range up to $50,000.
- This notably differs from Accion’s affiliate, Compartamos Banco in Mexico, where the average microloan amounts to around $500 for lower-income groups.
Regional Analysis of Microfinance Sector
India
- In the wake of the Andhra Pradesh crisis in 2012, Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) emerged as the sole regulated entities providing microfinance services to their clients and borrowers.
- During that period, the sector’s portfolio stood at Rs 17,264 crore as of March 31, 2012.
- Over the subsequent decade, this sector grew remarkably, expanding 16.5 times in size to reach Rs 2,85,441 crore by March 31, 2022.
- As of March 2022, the microfinance landscape had diversified, with approximately 202 entities actively participating.
- Banks held the largest share, contributing Rs 1,14,051 crore or 40.0% of the total micro-credit universe.
- NBFC-MFIs ranked second, accounting for Rs 1,00,407 crore or 35.2% of the industry portfolio.
- SFBs constituted 16.9% with a total loan amount of Rs 48,314 crore, NBFCs contributed 6.9%, and other Microfinance Institutions (MFIs) made up 1.0% of the universe.
United States
- While microfinance has seen substantial global growth, surpassing 140 million borrowers worldwide, its expansion within the United States has been modest.
- Unlike developing nations like Bangladesh or Peru, where microfinance has flourished, the United States has not experienced a similar explosive surge.
- According to a 2020 Federal Reserve survey, 7.1 million people, equivalent to 5.4% of U.S. households, were labeled as “unbanked,” signifying that no one in their household held a bank or credit union account.
- Nearly 20% of U.S. households found themselves in the unbanked or underbanked segments, with communities of color and immigrant groups experiencing higher rates.
- Furthermore, 92% of U.S. businesses qualify as microenterprises, employing fewer than five workers and accounting for over 41 million jobs.
United Kingdom
- Over four years in the United Kingdom (UK), from 2014 to 2017, there was a discernible pattern in the distribution of microloans, both for business and personal purposes.
- In 2014, 8,967 microloans were allocated for businesses, while 20,684 were extended to individuals for personal needs.
- By 2017, there was a marginal increase in business microloans to 1,074, accompanied by a further rise in personal microloans to 34,145, illustrating fluctuations in microloan distribution across these categories.
China
- By the conclusion of March 2021, China had 6,841 micro-credit companies operating in the country.
- The outstanding loans from these companies amounted to RMB865.3 billion, showing a decrease of RMB21.2 billion during the first quarter of that year.
- As of March 31, 2021, micro-credit companies in China exhibited a diverse presence across regions, with 6,841 institutions operating nationwide.
- These companies employed 69,039 individuals and possessed paid-in capital amounting to RMB 78.00 billion.
- The outstanding loans extended by these entities amounted to RMB 86.53 billion.
- Regionally, Beijing housed 105 such institutions with a paid-in capital of RMB 1.40 billion and outstanding loans of RMB 1.31 billion.
Brazil
- The number of loan accounts at non-deposit-taking microfinance institutions (MFIs) in Brazil exhibited a dynamic trend over the decade spanning from 2007 to 2017.
- In 2007, there were 8,540 loan accounts, but this figure declined to 5,972 in 2008.
- By 2017, the number of loan accounts remained substantial at 277,790, showcasing the evolving microfinance landscape in Brazil during this period, with a notable expansion in loan access and outreach.
Successful Microfinance Programs
The SHG-BLP Microfinance Model
- The SHG-BLP program has significantly expanded its reach, encompassing 140 million families and comprising 11.9 million SHG groups.
- These groups have collectively accumulated savings of INR 47,240.48 crore as of March 31, 2022.
- Impressively, during the fiscal year 2021-22, 3.4 million SHGs were linked to credit, a notable increase from the 2.9 million groups in the previous year, resulting in disbursements amounting to INR 99,729.23 crore.
- As of March 31, 2022, the outstanding credit stood at INR 1,51,051.30 crore, benefiting 6.74 million SHGs with an average of INR 2.24 lakh per SHG.
- The EShakti initiative, which digitized financial and non-financial data of over 1.27 million SHGs, aims to facilitate easier credit linkage with banks.
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