2009 Eastern Europe & Central Asia Microfinance Analysis & Benchmarking Report

In 2008, the microfinance sectors in many countries of the Eastern Europe and Central Asia (ECA) region continued on a path of positive but slower growth as the effects of the financial and economic crisis were felt in the last months of the year. Although 2008 macroeconomic indicators show that overall regional income levels increased and poverty rates decreased slightly as a result of high economic growth in prior years, the effects of the global financial crisis were already reflected in the slower growth rate of microfinance institutions - at 15 percent in 2008 vs. 30 percent in 2007. Still, microfinance providers continued to deepen outreach in 2008, increasing their penetration rate by 2 percent.

ECA countries experienced the effects of the global financial and economic crisis by the end of 2008 in the form of bank failures, tightening of credit, slowdown of economic activity, increases in unemployment and food prices, and decreases in remittances. After the onset of the crisis in the summer of 2008, countries in Central and Eastern Europe (CEE) as well as Russia were quickly affected due to their close financial and trade ties to Western Europe and the United States. Countries in the Caucasus and Central Asia, whose economies are highly reliant on remittances and trade with Russia, were hit by the crisis toward the very end of 2008 and into 2009 due to the decrease in transfers from abroad as well as local currency depreciation.

Compared to global peers, the microfinance market in ECA is one of the most closely linked with mainstream financial sectors; the largest institutions are microfinance banks, whereas non-bank MFIs cannot mobilize deposits and rely on borrowings from foreign funds and local banks. For that reason, ECA microfinance institutions (MFIs) are exposed to many of the same risks as other financial service providers in the region.

This report, jointly produced by MIX and CGAP, analyzes how MFIs performed and coped with heightened risks in 2008. The report explores the following themes as they pertained to the state of microfinance services in ECA in 2008:

• Market structure
• Credit risk
• Currency risk
• Funding risk
• Policy trends

This report begins with a presentation of the state of microfinance services in ECA in 2008 and looks at the overall structure of the market as well as trends in outreach for the past three years. Key issues and recent developments in the policy environment are discussed, followed by an analysis of the funding trends and financial performance of ECA MFIs. The final section discusses the effects of the global financial crisis on microfinance services in selected countries in 2009.

The ECA region, as presented in this report, consists of 22 countries divided into five sub-regions: the Balkans, Central & Eastern Europe (CEE), Central Asia, the Caucasus, and Russia. This region has a population of about 366 million, approximately 69 million of whom live below the poverty line.

In this publication:

Key Macroeconomic Indicators and Volume Figures, 2008

Eastern Europe and Central Asia: Key Indicators 2008

The State Of Microfinance Services in ECA in 2008 – General Trends

General Trends in Microcredit and Deposit Services 2006-2008

Policy Environment in ECA: Key Issues and Trends

Financial Performance of ECA MFIs

Effects of The Global Financial Crisis On Microfinance Sectors In Selected Countries In 2009

Ralitsa Sapundzhieva | Lead Analyst, Eastern Europe and Central Asia | MIX
Olga Tomilova | Consultant for Eastern Europe and Central Asia | CGAP