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BULLETIN HIGHLIGHTS
to the asset base, back down to the levels achieved
before the former group achieved sustainability.
A number of factors can drive this change. Sustainable
MFIs may be delivering services in increasingly
competitive markets. These exogenous forces
can drive MFIs to reduce their cost to clients in order
to retain their customer base. This competition
could provide the impetus for seeking the efficiency
gains that these MFIs demonstrate over the period,
cutting total costs by over 20%. Given the representation
of markets in the sustainable MFI sample
(Bolivia, Bosnia, Nicaragua, Uganda), it is likely that
the competition plays a significant role in cutting
yields and reducing costs.
Alternatively, endogenous forces, such as the efficiencies
derived from the scale of operations, may
also influence cost reduction. Indeed, half of the
cost savings realized for this sustainable group
came from operating cost reduction.
From a public policy perspective, sustainability and
the financial performance that underpins it are often
considered for their effects on longevity. That is,
sustainable institutions have financial performance
that increases the likelihood that they will continue
to offer services to similar client groups: sustainable
service delivery. Sustainable institutions can offer
their clients the same— and chances are, more and
better— products well into the future.
Figure 11: Sustainable MFIs pass on efficiencies to customers
60%
50%
40%
30%
20%
10%
Not sustainable
Became Sustainable
Sustainable
0%
1999 2000 2001 2002 1999 2000 2001 2002 1999 2000 2001 2002
Gross Yield on Portfolio
Operating Expense / Avg. Portfolio
Source: MicroBanking Bulletin no. 10 data. *Sustainability refers to the sustainability of the MFI over the period 1999-2002.
Sustainability has another important client dimension:
reducing costs to customers. Figure 11 sums
up the experience of the Trend Lines MFIs in a nice
continuum of intersecting lines. MFIs that went
from unsustainable to sustainable over the period
stand out from their unsustainable peers in the direction
of both their efficiencies (cost to institution)
and yields (cost to client). For those MFIs that became
sustainable, costs decreased an average of
five percentage points over the four years, enabled
by even greater savings to the institution. The unsustainable
crowd finished the period charging their
clients more, on average, than they did at the outset.
What happens to institutions after they reach sustainability?
A look at the last group offers the most
telling evidence of tangible client benefits from sustainability.
Yields decreased over the entire period.
On average, clients of sustainable MFIs paid less
for financial services— nearly five percentage
points— in 1999 than they did in 2002.
Conclusion
This first Trend Lines data set opens the door to
examining the dynamics of MFI performance over
time: trade offs, growth, movement, expansion.
Sustainability, as it demonstrates, holds the key to
greater client outreach, as well as long term cost
savings for clients. Both clients and the sector as a
whole benefit from sustainable institutions. These
remain two important concerns for financial sector
development.
The conclusions reached in the foregoing pages
can only reflect the experience of these 60 institutions;
yet microfinance is diverse, more so than this
small sample can represent. Each year, these
pages will reexamine these observations under the
light of a new and growing Trend Lines data set.
Some may be refined; some may be contradicted.
One thing is certain, as more MFIs report according
to industry standards and publicly disclose their results,
these benchmarks will more accurately reflect
the diversity of MFI retail performance.
MICROBANKING BULLETIN, MARCH 2005 29