2004 Central America Microfinance Analysis and Benchmarking Report

Some of the oldest Microfinance Institutions (MFIs) are found in Central America (CA); however, the market continues to be controlled by Non Governmental Organizations (NGOs), Private Development Organizations (PDOs), and small cooperatives. This reflects the low level of commercialization achieved by the sector. Some characteristics of the microfinance industry in CA are: little institutional diversification, minimal client outreach- only Eastern Europe & Central Asia (ECA) is lower, intermediate depth of outreach in both absolute and relative terms, little progress in mobilizing small deposits, and average financial performance. Nevertheless the data show interesting results when MFIs are analyzed by country and taking into account their financial scale.

How developed is microfinance in CA and in each of the five countries represented? What factors are influencing their performance? What are the key differences between the MFIs? This first report on “Benchmarking Microfinance in Central America” analyzes the performance of microfinance in CA focusing on the answers to these questions using the lens of the industry’s standard performance indicators.

Even though the microfinance industry in CA has the same median age as the oldest regions- Asia and the rest of Latin America, its performance is more similar to that of the younger ones- ECA and Middle East and North Africa (MENA). As a result of their NGO / PDO status, MFIs in CA have thus far not been successful in achieving greater development due to their difficulties in accessing commercial funds which limits their prospects for growing. MFIs in CA earn less revenue from their loan portfolios than their counterparts in other regions, except for Africa. High revenues are being outset by high operational costs and arrears, which reflect lower efficiency levels and poor portfolio control.