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p. 25 of 95 BACK | NEXT Message from the Chairman of the Board of Directors Members, Capital Stock and Voting Power The Record Abbreviations 2004 in Review: Board of Directors' Report Special Theme: The Changing Face of the Microfinance Industry: Building Financial Systems for the Poor The Challenge The Role of Central Banks in Microfinance Increased Diversity of Service Providers Increased Diversity of Operations Broader Target Markets Commercialization Meeting Future Challenges Part 1: Institutional Effectiveness Part 2: Poverty Reduction Part 3: Financial Statements: Management's Discussion and Analysis

Annual Report 2004 : Special Theme: The Changing Face of the Microfinance Industry: Building Financial Systems for the Poor

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Broader Target Markets

The Asian microfinance industry, perhaps with the exception of Indonesia, has traditionally focused on providing microcredit to rural women below and just above the poverty line unlike the Latin American industry which has focused on microenterprises. Recently, however, the target group in Asia has been changing, and the range of clients has become much broader.

Many of the leading Asian microfinance institutions have noted the importance of serving microenterprises in addition to their traditional clients. This appears to have been prompted by at least two factors. First, they seem to have realized that handing over their mature clients to established, conventional financial institutions does not make good business sense, particularly in an increasingly competitive and commercial market. Second, they seem to have recognized the benefits that these enterprises can generate to the poor in terms of employment, hence the link between microenterprise lending and poverty reduction. Sarvodaya Economic Enterprise Development Services in Sri Lanka and Tulay sa Pag-unlad, Inc. in the Philippines, two microfinance NGOs with which ADB has been working, have introduced a loan product to serve microenterprises with a view to creating new employment opportunities.

As was pointed out earlier, the target microfinance market is changing to include the poorest. This development is encouraging for ADB because it has supported the broadening of microfinance services since the mid-1990s. Recent developments are most visible in Bangladesh. BRAC has continued its innovative, 16-year-old income generation for vulnerable group development program for the poorest but in January 2001 introduced a new program—Challenging the Frontiers of Poverty Reduction: Targeting the Ultra Poor. BRAC's Addressing New Vulnerabilities program that started in July 2002 also illustrates how the target markets of microfinance institutions are expanding. This program focuses on women retrenched from the garment industry who are vulnerable to exploitation. The program expects to retrain these women—about 200,000—before inviting them to join the urban groups of its rural development program. Of the first batch of 1,300 who completed training, about 70% have joined.

Broadening the target group is not limited to the asset side of the balance sheets of these institutions: it is spreading to the liability side as well. Many microfinance institutions with legal charters to provide deposit services have begun to include the nonpoor by offering deposit products, particularly term deposits with higher minimum requirements, to improve their roles as financial intermediaries and to diversify their sources of financing. This is similar to the deposit mobilization approaches followed by many Latin American microfinance institutions since the mid-1990s. The Asian microfinance institutions that are expanding their domains in this manner include ACLEDA Bank in Cambodia, Xac Bank and Khan Bank in Mongolia, and the First Microfinance Bank in Pakistan. By expanding resource mobilization through public, voluntary deposits, these institutions reduce their reliance on donor funds.

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