Microfinance in Latin America and the Caribbean: Connecting Supply and Demand

Publication Date: Nov 2006
Published by: IADB - Inter-American Development Bank
Document Type: Paper

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This paper provides a snapshot of access to financial services in Latin America and the Caribbean.

The findings of this paper are based on information collected from microfinance institutions (MFIs), to study their current structure, and from the National Household survey (NHS) data, to analyze access to financial services in Latin America and the Caribbean (LAC) and the relative impact on savings.

The following are the key findings of the study:

• MFIs in LAC have an outstanding portfolio of over US$5.4 billion and have a 46% annual growth rate;
• To judge the significance of MFIs in each country, the ratio of MFI clients and total population and MFI clients over number of microenterprise was calculated. Nicaragua and Ecuador ranked highest under both the categories;
• Return on Asset (ROA) of MFIs at LAC ranges form 6.7% to 19.6%, which is higher than worldwide average;
• Households with microenterprise activity reported a higher use of credit (6.4 percent vs. 5.8 percent) but with a much lower use of saving facilities;
• Financial literacy is not seen as a major problem for accessing loan; lack of need for credit and problem in understanding the credit product is;
• Even for low-income households the demand for larger amounts is usually met by the formal sector.

The paper suggests measures for improving access to financial services in the region, as under:

• Clear differentiation between access, demand and use of financial services needs to be made;
• Microfinance should be measured as the provision of all financial services to low-income segments ;
• Use of information from each institution should be complemented with information from NHS.