TRENDS and GROWTH of MICROFINANCE PROGRAMS of Mfis

Bangladesh Microfinance Statistics 2014

Trends and Growth of

Microfinance Program

TRENDS AND GROWTH OF MICROFINANCE PROGRAMS OF MFIs

This chapter presents a picture of microfinance programs focusing on the trends and growth of different indicators of the overall microfinance sector in Bangladesh. In doing so, data of all reporting MFIs have been used and average figure per MFIs have been calculated. The available data and information have been processed carefully and are presented in such a manner that it can help the readers to understand clearly the growth and efficiency of the MFIs in the given period. While the previous chapter basically deals with the overall development of the microfinance sector of the country, this chapter is specific and limits itself to the trends and growth of the sector based on definite and widely accepted indicators.

2.1.Direct employment generation by employing staffs by MFIs:

Up to December 2014, the 511 MF-NGOs including the Grameen Bank (GB) have created employment for 230,177 peopleof which 133,607 (58%) are directly related to microfinance (Table 2.1). Over a period of last five years, the total staffs have grown 35.54% in 2014 while the average growth is 8.89%. On the other hand, in case of credit related direct programs, the staff growth rate has been 50.87% while the average growthhas been 12.7%.In 2014 as against 2013, there has been a remarkable growth in total staff as well as in credit programs, which are 8.70% and 12.99% respectively. In 2012 total staff growth and credit staff growth was the highest during the last five years, which were 25.53% and 26.20% respectively.

Table 2.1: Growth of staff employed by MFIs

(As of December)

Source: CDF yearly survey 2010 to 2014.

2.2.Growth of members of MFIs by location:

That the overwhelming majority of members are from rural areas is quite clear from the available data on the MF-NGOs. This appears to have direct bearing of rural-urban population ratio on MFIs rural-urban membership ratio. Prevalence of poverty in rural areas might have also contributed to this situation that caused them to have started their programs in rural areas first and, gradually, expanded their programs to urban areas. Women empowerment had been one of the prime agenda for the poverty alleviation tool both in the UN-sponsored MDGs and PRSPs in Bangladesh.

It appears from Table 2.2 that a total of about 34.04 millionmembers have been mobilized as on December 2014 of which 3.61 million in rural and about 3.43 million in urban areas. Per MFI total members are66,612 in 2014 with 49% increase over 2010. The share of rural areas in active members is about 89.92%in 2014, which was 90.50% in 2013. The difference is due to the fact that in 2013 a total of 550 MFIs provided data as against 511 MFIs in 2014.Furthermore in 2014, the growth of members per MFI over 2010 is 48.73% with per year average growth is 12.18%. During this five year period, the growth of members in the rural area is 46.95% andper year average growth is 11.74%. On the other hand, the picture in the urban is that the growth of members per MFI is 66.81% with per year average growth is 16.70%.

Table 2.2: Members’ growth by location

(As on December)

Source: CDF yearly survey 2010 to 2014.

2.3.Borrower-Member ratio:

In MFIs all members by turn access to loan facilities. But there is a period when loan is liquidated by them and such borrowers have to wait for some time for the next loans. So at any point of time 100% members cannot be borrowers. The average borrower-member ratio during the five years shows that the ratio is 80.29%, which is pretty high. In 2010, the ratio was 78.57%, the same was found to be 80.03% in 2014. Table 2.3 shows that the borrower-member ratio since 2010 began to rise gradually until 2013 and thereafter has a slight fall in 2014. The fall can be attributed to a good number of MFIs refrained from providing data and their borrowers position did not thus emerge in the picture.

The table further shows that during the years the members’ growth has been 48.73% while the borrowers’ growth51.50%. Per year members’ average growth is 12.18%and that of the borrowers is 12.87%. During the five year span both increase and decrease has occurred in the growth of members and borrowers per MFI. The negative growth is not anissue to be concerned with. In the MFI sector many members on their own cease to become members and borrowers after liquidation of loans. Sometimes many MFIs shutdown branches due to continued losses and hence the number of members’ and borrowers’ decline. This is a normal phenomenon.

Table 2.3: Growth of members and borrowers per MFI and borrower-member ratio

(As of December)

Source: CDF yearly survey 2010 to 2014.

2.4.Savings growth of MFIs:

The practice of savings mobilization from the members can be traced as early as the MFIformation or microcredit program initiation year. Usually, the MFIs mobilize savings from their members through flexible and mandatory savings. The more the amount of net savings the higher is the retention rate of the members in the program.

2.4.1.Savings growth by location: In 2014, total net savings mobilization of the 511 reporting MFIs from their members is Tk.227,131million of which 90.69%is from rural areas and the rest 9.31% from urban areas. Total net savings mobilized per MFIs by members increased by 41%, the rural savings grew 35% and the urban savings 133%. On the other hand, growth of net savings per MFI in 2014 over 2010 is 112.44%. The rural and urban savings per MFI during this time are 104.57% and 241.67% respectively. Per year average growth of net savings per MFI is calculated at 28.11%.This growth figure per MFI has been calculated at 26.14% in the rural and 60.42% in the urban areas. The growth of this indicator is certainly indicative of MFIs holding stronger footing among the community over the years. Year to year changes of net savings per MFI follow both increase and decrease pattern over the last five years.

Table 2.4.1: Savings growth by location

(Tk. in million)

Source: CDF yearly survey 2010 to 2014.

2.4.2.Savings mobilization per member and borrower: MFIs performanceunder this indicator appears to be quite satisfactory. Average net savings mobilized per member continued with an impressive growth of 34.94% per year since 2010. Per year average growth is 8.74%. Generally per member savings has been on the rise. On the other hand, savings per borrower rose from Tk. 5,926 in 2010 to Tk. 8,338 in 2014 resulting in 41% increase. Per year average savings growth of borrower has been 10.18%.Borrowers’ savings growth had both rise and fall during these years. Details are in (Table 2.4.2).

Table 2.4.2: Year-wise savings per member and borrower of MFIs

(in Tk.)

Source: CDF yearly survey 2010 to 2014.

2.5.Trend in lending behavior:

The year 2014has been found in this review to be a year of modest growth after boost in the two preceding years in terms of both borrowers as well as loan size.

2.5.1.Loan disbursement of MFIs:This review has found that in 2014, a total of Tk. 647,215.61 million was disbursed by 511 reporting MFIs which was Tk. 566,841.57 million in 2013 by 550 MFIs resulting in 14% increase in disbursement. However, since 2010 the disbursement has increased 74% (Table 2.5.1). However, per MFIs loan disbursement has increased to Tk. 1,266.57 million in 2014 compared to Tk.1030.62 million in 2013 registering an annual growth of 22.89%. Such growth of per MFI loan disbursement was much higher in 2011 and 2012, which was 31.71% and 45.60% respectively.Notably the growth ofdisbursementper MFI in 2014 over 2010 is 163.32%.Per year average growth has been calculated at 40.83%.

Table 2.5.1: Annual growth in loan disbursement

(As of December)

(Tk. in million)

Source: CDF yearly survey 2010 to 2014.

2.5.2.Outstanding loan of MFIs: Outstandingloan is indicative of balance amount of loan generally after repayment by the borrower on the on-going business.Loan portfolio is a liability of the borrower to the MFI. Again it is MFI’s current assets. The bigger the portfolio of the MFI, the higher will be its interest income or service charge. In the year 2014, the amount of outstanding loan of the 511reporting MFIsisTk.409,965.57 million, which was Tk.348,053.22 million of 550 MFIs resulting in the increase of 18%. The Table 2.5.2 shows that the outstanding loan per MFI has increased to Tk.802.28 million in 2014 from Tk.286.76 million in 2010 registering a growth of 179.77% while per year average growth of MFI loan outstanding has been 44.94% in 2014.

It is important to analyze the average per borrower outstanding loan since this is the amount that remains with the borrower to be utilized as small capital. In 2010, per borrower outstanding loan was only Tk.8,149, which has increased to Tk. 15,049 in 2014resulting in an increase of 85%. This shows that the loan handling capacity of the borrower has enormously increased. Per borrower loan outstanding continued to rise over the last five years. In case of per MFI loan outstanding there is both increase and decrease situation.

Table 2.5.2:Trend of outstanding loan and borrowers

(As of December)

Source: CDF yearly survey 2010 to 2014.

2.5.3.Average size of loan disbursed:Over the period under review (2014), the overall size of loan per borrower is observed to be higher than immediate past years. Average loan size per borrower is around Tk. 24,243 of the reporting 511 MFIs in 2014 compared to Tk. 22,233 in 2013 of 550 MFIs. The overall growth per loanee in 4 years (2011-2014) excluding 2010has been worked at31.84% indicating per year growth of loan size per borrower during the period at10.61% [Table 2.5.3]. The loan size growth shows a fluctuating pattern.

Table 2.5.3: Loan size per borrower

(As of December)

Source: CDF yearly survey 2010 to 2014.

2.5.4.Recovery rate:Loan recovery rate is an important issue for the MFIs. From the repaid loan comes both principal amount and the interest income or service charge. An MFI with a good recovery rate can lend money to its clients better and move towards sustainability with service charge income.During the period under review (2014), loan recovery rate has been found to be at thehighest level (98.39%) than most of the previous years since 2010.Thelowest recovery rate was 94.45% in 2010. Overall, the loan repayment rates of MFIs have been found to be satisfactory except 2010 and 2013 where the rates were slightly lower than 95%.The loan recovery rate in 2014 is higher by4.17% in terms of growth over 2010.Again per year average growth rate of recovery is 10.04%.During the last five years both increase and decrease in the growth of recovery rates are noticed.

Table 2.5.4: Year-wise loan recovery rate of MFIs

(As of December)

Source: CDF yearly survey 2010 to 2014.

2.5.5.Overdue loan: The overdue loan is a term in the microfinance terminology denoting some kind negative connotation in the performance of an MFI. Overdue loan has been increasing since 2010 and has stood at Tk.15,344.62 million in 2014.The Table 2.5.5 shows the overdue as percentage of loan outstanding “range” from 3.15% (2010) to 3.79% (2012). Compared to 2013 (3.51%), it has slightly risen to 3.74% in 2014.This overdue /loan outstanding ratio is not that worrying. In 2010, overdue loan per MFI was Tk. 9.02 million, which increased to Tk.30.03 million in 2014 reflecting an per year average growth of overdue to58.23%. In context of rising trend, the overdue loan is also increasing.

Table 2.5.5: Trend of overdue loan of MFIs

(As of December)

*Simple estimated figure. Source: CDF yearly survey 2010 to 2014.

2.6.Trend of contribution of various sources of loan fund:

During the process of review of the MFIs performance over the year 2014, the reporting MFIs have been found managing funds for loan disbursement from more than 16 sources. These were categorized into six main types that include members’ savings, loans from different sources, internal funds, excess income, donors grant and others.

This review has found that the members’ savings was the largest source of fund for the MFIs. Moreover, as the major source members’ net savings continued to be the single most important source of loan fund of which average share varies from 44% to over 54% of total fund and an average of per year 48.33% during the period of four years from 2010 to 2014. This is a less expensive source of fund. There is, however, huge potential of savings collection particularly in the rural areas. But due to the limitation of current regulation savings cannot be mobilized to the desired level. Despite the fact, the members’ savings still has been playing significant role in expanding microfinance sector over the last few decades. Through a process of gradually declining trend, donors grant has come to a minimum level of less than 1% in 2014.

From the table below (2.6), the second largest contributing source has been loans from different sources including Bank Loan, Loans from PKSF, International NGOs, Local NGOs, Personal loans and all these have constituted about 18% of total fund in 2014 for disbursement. The third largest source is internal funds mobilized by the MFIs internally, which includes emergency fund, insurance fund, loan revolving fund, own fund, reserve fund, security fund and so on. On an average, its share was 12.23% to 26.62% of loan fund during last five years since 2010. The fourth largest contributor to the loan fund was excess income of MFIs with a share of 6.29% in 2010 which marked gradual increment over the years reaching to 9.71% in 2014.The average of this category is 8.06% for the period of last five years (2010-2014).

Table 2.6: Trend of contribution of sources of loan fund by category

(in %)

Source: CDF yearly survey 2010 to 2014.

2.7.Conclusions:

Microfinance has recently has gained considerable importance in the financial sector due to its effective role in alleviating poverty especially of the rural poor. This chapter has presented a picture of the microfinance performance of the 511 MFIs. The available statistics of the five years from 2010 to 2014 on different indicators has provided a clear idea of the trends and growth of this sector. It has been quite evident that remarkable growth has been achieved in many indicators including borrower-member ratio, loan disbursement, the size of loan per borrower, net savings per member and loan outstanding and loan recovery rate.This sector has emerged as the most vibrant financial sector. The chapter further has revealed that although donors’ grant played role as the major source of fund for quite long in the past, today members’ net savings has become a prime source. Besides, own fund, excess income, bank loan and loan from PKSF were also dependable sources for the MFIs. The contribution of donor fund can be regarded negligible.What is imperative now is to create provisions in the microcredit regulation so that MFIs can mobilize more savings and MFIs could be legally equipped to materialize this objective.

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