By Christen, R.P., Rosenberg, R.& Jayadeva, V. (July, 2004)
http://www.cgap.org/docs/OccasionalPaper_8.pdf
Abstract
This paper summarizes the results of the CGAP survey of global outreach of Alternative Financial Institutions (AFIs) and analyzes the performance of the different kind of institutions that form the AFI group as well as the challenges and opportunities that these organization face in the future.
Key points highlighted in this paper are:
- AFIs refers to organizations that focus on extending financial services to clients that do not have access to commercial banks. They have a 'double bottom line': financial sustainability and social impact.
- MFIs (a subset of AFIs) have attracted a lot of the attention so far, but other organizations might be serving a larger share of the poor and, thus, deserve more attention.
- Strengths and weaknesses of the different AFIs present new opportunities to learn from one another and develop links to provide more and better services to the poor.
- AFIs size is usually underestimated since it is measured by its assets, but if measured by the number of clients it serves, it accounts for a very significant share of financial system clients in developing and transition economies.
Summary
Alternative Financial Institutions (AFIs) are defined in this paper as those organizations which aim to provide financial services to the unbanked. They tend to have a non-financial goal as well as a financial one, the latter being considered only the means to achieve the former. Examples of AFIs are: MFIs, community banks, credit unions, commercial banks with microfinance operations.
The number of poor people AFIs serve is very hard to estimate. The results of the CGAP survey of global outreach of AFIs show that there are 750 mln savings and loan accounts in developing and transition economies. It must be highlighted that number of accounts is different and considered larger than number of clients. Unfortunately, most organizations do not have information for number of clients. Moreover, they do not have information that would allow us to say which of their clients are poor and which are not, since most of them serve a mix of clients.
The number of savings accounts is significantly larger than the number of credit accounts. Based on the survey findings, the authors estimate that for every credit account there are four savings accounts. The most significant players managing savings accounts are government-owned AFIs, which hold 75% of total accounts.
MFIs have proved to be more efficient in managing credit accounts and hold 18% of total accounts and 33% of all credit accounts. As MFI's the authors consider NGOs, non-banking financial institutions (regulated and unregulated) and commercial banks specialized in microfinance.
Based on the four-dimension analysis of CGAP, the authors find that different kinds of organizations have different strengths and weaknesses. For example, postal savings banks have a larger breadth of outreach but lack service quality. Similarly, MFIs have sophisticated methodologies tailored to meet the client's needs but have not been able to reach a critical mass.
The large number of clients being served by AFIs highlights the need to provide more attention to these institutions, especially from government, who tends to neglect them and usually provides low-quality supervision. The opportunities for cross-fertilization between MFIs and other AFIs are large and should benefit the sector and the poor.