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p. 6 of 24 BACK | NEXT Introduction Need for a Development Strategy for Microfinance Microfinance in the Asian and Pacific Region Demand for Microfinance Sservices Supply of Microfinance Sservices Major Achievements in Microfinance Challenges ADB’s Microfinance Experience Other Agencies’ Microfinance Experience ADB’s Microfinance Development Strategy Implementation of the Strategy

Microfinance Development Strategy : Microfinance in the Asian and Pacific Region

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Major achievements in microfinance

The MFIs and other financial institutions (OFIs) providing microfinance services have expanded their outreach from a few thousand clients in the 1970s to over 10 million in the late 1990s. The developments in microfinance in the Region have set in motion a process of change from an activity that was entirely subsidy dependent to one that can be a viable business.

1. MFIs and OFIs mobilizing voluntary savings have shattered the myth that poor households cannot and do not save, and proved that savings can be successfully mobilized from poor households. This is perhaps a more important achievement of microfinance in the Region than the expanded outreach in access to credit.

2. MFIs, OFIs, and their clients have shown that the poor are creditworthy (poor women, in particular) and financial services can be provided to and accessed by the poor on a profitable basis at low transaction costs without relying on physical collateral, if it is done with appropriate financial technology and a commitment to achieve efficiency.

   Box 3: Outreach with Sustainability: The Case of Association for Social Advancement (ASA) in Bangladesh ASA, an NGO, has been providing microfinance services since 1991. ASA had 326,200 active borrowers in 1995; this number increased to 1.084 million at the end of 1999. ASA’s loans outstanding increased from Taka (Tk) 559.7 million ($11.2 million) to Tk 3.679 billion ($73.6 million) during the same period. Despite the rapid growth in portfolio and outreach, ASA maintained its on-time loan recovery rate at over 98 percent. The small average loans (22 percent of per capita gross domestic product) and savings balances (6 percent of per capita gross domestic product) indicate that ASA’s clients are poor households. Women account for over 90 percent of the clients. Until the end of 1996, ASA offered only compulsory savings service. In 1997, ASA began to offer voluntary savings facilities as well. With this, the number of active savings accounts increased from 561,530 at the end of 1996 to 1.467 million at the end of 1999. The outstanding savings of ASA increased from Tk 442.8 million ($8.9 million) to Tk 1.269 billion ($25.4 million) during the same period, with voluntary savings accounting for about 50 percent of the latter amount. ASA is a cost-efficient MFI with a simple organizational structure, a simple operating system, and a very lean head office. Its staff are committed to provide low-cost, quality financial services to the poor. Thus, ASA's operating cost ratio declined from 17.2 percent in 1995 to 9.6 percent in 1999 while profits increased from Tk 3.1 million ($62,000) to Tk 89.6 million ($1.8 million). During 1991-1995, ASA charged a flat interest rate of 15 percent per year, which is approximately equal to 30 percent per year on reducing balance basis. Since late 1995, ASA has been charging a lower flat interest rate of 12.5 per year. (With the flat interest rate method, interest is calculated on the original loan for the entire period of the loan.) Source: Jain, P.S. 2000. Maturing of Micro-credit Movement. Dhaka: ASA.

3. Microfinance services have triggered a process toward broadening and deepening of rural financial markets.

4. Microfinance services have strengthened the social and human capital of the poor, particularly women, at the household, enterprise, and community level.

5. Sustainable delivery of microfinance services on a large scale in some countries has generated positive developments in microfinance policies and practices among all stakeholders: governments, central banks, microfinance service providers, and external funding agencies.

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