Understanding the Microlending Landscape: Slow but Steady Growth

Financial inclusion is a key enabler in reducing poverty and helps in achieving inclusive development and growth. It forms an integral part of the Sustainable Development Goals set by the United Nations. Astonishingly, around one-fourth of the world’s population lacks access to basic financial services, and in some of the countries such as Asia and Africa, less than 15% of the population has a bank account.

Microlending is one of the crucial drivers of change in the quest for financial inclusion. As per our previous article on the subject, microlending continues to push the envelope for global financial inclusion and is enabling underserved groups of the population and micro-businesses – predominantly in rural areas – to gain access to credit, for meeting their financial needs.

According to the Convergences Microfinance Barometer Statistics, the global microlending landscape has been experiencing a slow-but-steady growth. In 2017, the global loan portfolio for microlending was at $114 billion. In 2019, it is expected to reach $129.4 billion, growing at a CAGR of 6.53% since 2011. The total number of borrowers in the global micro-lending space was at 139 million in 2017 and is estimated to reach 158.36 million in 2019, growing at a CAGR of 6.74% since 2011.

South Asia's microlending industry leads the global outreach, accounting for nearly two-thirds of global borrowers (60%). The region’s growth in borrowers slowed for the second year, from 13.4% in 2016 to 6.6% in 2017. This major reason for the slowdown was attributed to demonetization in the largest market of the region, India, which resulted in borrower growth to fall from 20% in 2016 to 5.8% in 2017. The growth in Latin America and the Caribbean also slowed down in 2017; the region saw an aggregate growth of 1.1% in borrowers from 2016 (+8.1% in 2016).

The average ticket size (loan portfolio per borrower) is the highest in Eastern Europe and Central Asia ($2,571 in 2017) and has reduced by 14.3% from 2016. The region also saw a reduction in its borrower base, which can be attributed to the stricter regulation norms applied in Tajikistan, resulting in the licenses of some MFIs being revoked. In addition to this, there was a reduction in terms of a diminished borrower base in Azerbaijan, where it shrank by over 25% in 2017, while the loan portfolio shrank by 15%.

The South Asian MFIs have been making continual efforts to serve the demographics of women. With 92% of microloans being given to female borrowers, the region also saw a large reduction in account access between men and women, from 18% in 2014 to 11% in 2017, while the overall account access went up to 70%. On the other end of the spectrum, MFIs in Eastern Europe and Central Asia serve a majority of male clients: only 45% of their borrowers are women. The gender gap in the region has also increased from 3% to 6% despite the overall growth in account access by 7%.

The microfinance industry may be seen as one of the important arms in the fight against financial exclusion. It has been providing financial products and services to the most vulnerable sections of society; this has had a real positive impact on the bottom of the pyramid, where serious work is required to make the ‘100% financially included’ aim come true. With the steady growth of the microfinance industry, it is reasonable to believe that the underserved and underprivileged are getting help where they need it the most.