Microfinance Banana Skins 2008 - Citigroup

C S F I / New York CSFISponsors’ forewordIn 1998 when the CSFI issued its first Banking Banana Skins report, microfinance was still largely unknown andobscure, a niche-interest for government-sponsored donors. Today, a decade later, with a Nobel Prize under its belt, andwith foreign capital investment at US$1.5 billion a year, it’s a dynamic field, with a slew of new and serious investors.Microfinance is exploding.No longer the provenance only of NGOs offering microcredit to a limited number of entrepreneurs, the word‘microfinance’ has entered the general lexicon. It no longer denotes just small loans for productive purposes. Today, itactually means, for many, retail banking for millions – potentially billions – of poor people.This is the context in which the Citigroup Foundation and CGAP, a leading microfinance group housed at the WorldBank, sponsored CSFI to write the inaugural Microfinance Banana Skins Report.This report presents the findings of the first global industry survey on the risks affecting the growth and viability ofcommercial microfinance institutions. Our ambition is to raise awareness and engage investors, policy makers andmicrofinance institution managers on the perceived risks facing this new sector. While by no means exhaustive, thetwenty-nine risks identified provide a faithful snapshot of the microfinance industry today.None of the risks highlighted here are that surprising for a young, emerging industry that is expanding at breakneckspeed. Nonetheless, we hope that by highlighting the perceived risks affecting the global growth of commercialmicrofinance the report will inject a dose of realism into the debate about the investment boom – and the(mis)perception that microfinance, which has enjoyed limited default history, therefore carries little or no risk.The report is intended to distinguish areas where development is needed, particularly at an industry level, to keep thingson track. It is notable that the report highlights the importance of qualitative variables, with Management Quality, andGovernance topping the list of risks, and points to an old microfinance mantra: the need for increased focus on retailinstitution capacity building.As sponsors of the report, we are grateful for the 305 industry participants from 74 countries who contributed to thesurvey and whose comments form the basis of the report. We would like to thank the CSFI and David Lascelles inparticular, for producing such a coherent and engaging report. The Council of Microfinance Equity Funds was also animportant project partner in this endeavour, and we are grateful to them for co-ordinating the Steering Committee’swork. We would also like to thank the Microfinance Information eXchange (MIX) for their support in the surveydesign and outreach.We hope that the Microfinance Banana Skins Report will be a valuable tool in charting the progress of commercialmicrofinance, highlighting the biggest and rising risk areas on the road ahead.Bob AnnibaleGlobal DirectorCiti MicrofinanceElizabeth LittlefieldCEOCGAPCSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk 3