Microfinance observatories: Getting central banks interested in finance for the poor

Information about microfinance is the best foundation for realistic policies to control and regulate, to promote and encourage. SFP has initiated a microfinance observatory to help central banks familiarize themselves with microfinance, how it differs from conventional finance and how it fits into the overall financial landscape. The idea is that central banks need to learn much more about the Microfinance industry to avoid rash decisions on supervisory and licencing norms. Information is a pre-condition for efficient interventions of monetary authorities, it facilitates ratings and introduces a healthy dose of competition in performance amongst MFIs.

The first microfinance observatory was developed by the Social Finance Programme in the 1990s in partnership with the BCEAO in the framework of the PA-SMEC (“Support Program for Mutual Savings and Credit Institutions”). The PA-SMEC seeks to integrate microfinance into the regular activities of the central bank, i.e. bank supervision, monetary policies and market development. The PA-SMEC data bank compiles financial performance and outreach data contributed on a voluntary basis by all MFIs that have constituted at least a secondary level structure. Each data set consists of over 30 entries, ranging from descriptive information (like range of services provided, percentage of women borrowers etc.) to statistical data. The coverage (i.e. the percentage of MFI analyzed compared to the estimated total population of MFIs) has increased from approx. 65% in 1996 to more than 80% in 1999. Financial performance data and poverty outreach indicators (average loan and deposit size etc.) have helped the MFI, central bank and others to identify problems as they start to emerge (early-warning function).

The PA-SMEC microfinance observatory allows analysis on :

• changes over time in the composition of assets and resources of each MFI, groups of MFIs and entire MFI industries in the different countries;
• gender analysis (clientele, management, board)
• detection of changes in the quality of loan portfolios
• adequacy of provisioning
• poverty outreach in terms of average transaction size
• cost coverage of operating costs by operating revenue
• pricing of products
• dependence on external donors for capital and technical assistance
• proportion of the market reached by MFIs (penetration ratio
• productivity measures (clients per loan officer) etc. 

Since 1994, the PA-SMEC microfinance observatory has been coming out every two years, covering in 2003 over 600 MFIs in seven countries of the West African Monetary Union.

The product is currently being adjusted for replications elsewhere in Africa and Asia.

For more information, please contact Bernd Balkenhol.