2005 Central America Microfinance Analysis and Benchmarking Report
As performance information coming from Microfinance Institutions in Central America (CA) improves each year, we are able to more accurately evaluate the market. For this 2005 edition we have organized new CA peer groups to widen and enrich our analysis. These new groups have allowed us to examine the differences in MFIs’ financial structure, the credit methodology they use and determine how these influence their results.
During the last few years the CA Microfinance industry has consolidated due to some important changes in the regulatory environment (such as the abolition in several countries of adverse taxation laws for microfinance Non Governmental Organizations (NGOs) and the approval in Honduras of a law regulating microfinance NGOs. The microfinance networks in the region have also demonstrated their influence by demonstrating to governments and the international community the importance of developing efficient and sustainable microfinance industries. The market presence of new actors such as the private banks has also increased competition. Furthermore, some NGOs are lobbying for the approval of microfinance legislation to reduce cumbersome regulations such as interest rate restrictions. However in some countries these discussions have come to a standstill. Finally, there are some political situations in the CA horizon, particularly the elections in Nicaragua at the end of 2006, which could influence the industry.
With information from several new players, our performance indicators have become more reliable and allow for a better characterization of the market. We also used this information to compare the characteristics of CA MFIs with the rest of Latin America and the Caribbean, with the former exhibiting less leverage, smaller loan portfolios and total borrowers, higher levels of risk and lower profitability.
The peer groups analyzed in this report identify important variations in the institutions’ performance. MFIs intermediating deposits reach the lowest risk clients, achieve the highest scale, and are more efficient and profitable even though they are not necessarily reaching the poorest sectors of society. Other institutions are making efforts to serve low income individuals but are facing difficulties lowering their operation costs, especially MFIs that use the solidarity group and village banking methodologies.
