Banking. Championship. League. The pioneers of the microfinance industry are still in the lead, but newcomers are quickly catching up.

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1 Banking Championship League MicroEnterprise Americas and the MIX report on Latin America s top MFIs By almost any measure, Latin America s leading microfinance institutions (MFIs) are second to none. With industry pioneers still in the sector s vanguard, and newcomers quickly catching up, this region s MFIs are reaching more clients and posting higher returns than ever before. MicroEnterprise Americas and the MIX (Microfinance Information exchange), publisher of the MicroBanking Bulletin,have teamed up to offer readers a broad picture of the microfinance industry in Latin America and gauge performance leaders in seven categories: scale, depth of outreach, growth, savings, efficiency, asset quality and profitability. To cover as many institutions as possible, this new feature includes 2002 data. Micro-MIX plans to bring you the 2003 and 2004 results in the next issue. The 60 leading microfinance institutions of 2002 had a combined loan portfolio of more than $1.8 billion, with 2.3 million loans outstanding. The institutions came from all walks of microfinance life commercial banks, finance companies, nongovernmental organizations (NGOs), banking service companies and credit unions and truly represent a snapshot of this rapidly developing industry in Latin America. The pioneers of the microfinance industry are still in the lead, but newcomers are quickly catching up. IDB/HEINZ MICROENTERPRISE AMERICAS

2 TOP MFIS IN LATIN AMERICA AND THE CARIBBEAN Number of Gross Loan MFI Country Type of Institution Loans Outstanding Portfolio in $US Banco del Trabajo Peru Regulated 252,000 $167,115,822 Caja Social* Colombia Regulated 233, ,777,031 Compartamos Mexico Regulated 144,991 42,289,731 CrediAmigo Brasil Regulated 118,995 22,001,409 MiBanco Peru Regulated 99,121 92,266,648 CMAC - Piura Peru Regulated 95,017 71,838,361 Solución Peru Regulated 81,700 79,139,158 Banco Solidario Ecuador Regulated 72, ,419,750 CMAC - Trujillo Peru Regulated 71,047 47,975,364 CMAC - Arequipa Peru Regulated 62,151 69,428,856 Banco Estado* Chile Regulated 61,841 57,896,000 WWB - Popayán Colombia Non-Regulated 52,875 11,901,433 CMAC - Sullana Peru Regulated 51,444 26,901,537 Caja Los Andes FFP Bolivia Regulated 51,073 64,134,252 Calpiá* El Salvador Regulated 44,771 44,772,000 BancoSol Bolivia Regulated 42,290 80,899,813 CRECER Bolivia Non-Regulated 40,142 5,815,265 ADOPEM Dominican Republic Non-Regulated 36,782 11,720,275 Génesis Empresarial Guatemala Non-Regulated 35,452 17,155,225 Fundación Mario Santo Domingo* Colombia Non-Regulated 34,957 5,261,369 BanDesarrollo Microempresas Chile Regulated 33,704 18,041,060 ProMujer - Bolivia Bolivia Non-Regulated 31,535 4,524,725 Interfisa* Paraguay Regulated 29,989 12,655,965 WWB - Bucaramanga Colombia Non-Regulated 27,425 6,193,449 CMAC - Cusco Peru Regulated 26,766 29,080,757 FIE FFP Bolivia Regulated 26,468 34,603,691 PRODEM FFP Bolivia Regulated 21,386 44,079,286 Fondo de Desarrollo Local Nicaragua Non-Regulated 21,299 12,491,067 BanRural* Guatemala Regulated 21,213 42,890,159 EDPYME Edyficar Peru Regulated 20,392 23,409,532 FAMA Nicaragua Non-Regulated 20,201 8,774,845 Scale of Lending Operations Reaching the region s millions of unbanked people remains an overarching challenge. This year, both size and growth are big stories in the industry. Just how large have Latin American MFIs grown? And how many borrowers do they reach? The list above provides some interesting insights. Two commercial banks have broken the 200,000-loan mark, while Compartamos of Mexico and MiBanco of Peru surpassed the 100,000 benchmark. Preliminary data on some institutions show that others had reached more than 100,000 clients by the end of With the exception of Compartamos, however, consumer loans represent an important percentage of the total loan portfolios of many of Latin America s largest institutions. A number of the largest institutions are new to the MicroEnterprise Americas and MicroBanking Bulletin list. Why were they left out in years past? Historically, it has been difficult to capture relevant data for financial institutions 16 MICROENTERPRISE AMERICAS 2004

3 T Number of Gross Loan MFI Country Type of Institution Loans Outstanding Portfolio in $US Confía* Nicaragua Regulated 20,183 $15,078,000 CMAC - Tacna Peru Non-Regulated 19,929 18,109,013 Banco ADEMI* Dominican Republic Regulated 18,809 65,489,414 FinAmérica Colombia Regulated 18,202 15,686,630 ACODEP Nicaragua Non-Regulated 17,874 7,208,957 CMAC - Ica Peru Regulated 17,017 13,231,954 Apoyo Integral El Salvador Non-Regulated 16,939 10,319,297 WWB - Medellín Colombia Non-Regulated 16,604 4,464,180 CrediFe Ecuador Regulated 16,438 9,393,937 WWB - Bogotá Colombia Non-Regulated 16,357 4,836,000 ProMujer - Peru Peru Non-Regulated 15,327 1,312,227 FINCA - Ecuador Ecuador Non-Regulated 14,958 3,659,000 Covelo* Honduras Non-Regulated 13,819 7,315,169 Bancafé* Guatemala Regulated 12,000 17,304,539 FINSOL Honduras Regulated 11,051 6,408,463 ProMujer - Nicaragua Nicaragua Non-Regulated 10,733 1,006,871 FED Ecuador Non-Regulated 9,317 3,658,146 FINCOMUN Mexico Regulated 9,315 5,760,097 FINDESA Nicaragua Regulated 8,545 10,567,000 Fundación Nieborowski Nicaragua Non-Regulated 8,107 5,436,213 CEAPE - Maranhão Brazil Non-Regulated 8,009 1,210,368 EDPYME ProEmpresa Peru Regulated 7,630 6,192,418 D-MIRO* Ecuador Non-Regulated 6,971 2,062,000 BanGente Venezuela Regulated 6,314 2,940,088 FINCA - Peru Peru Non-Regulated 6, ,676 Fundación Paraguaya Paraguay Non-Regulated 6,014 1,939,691 Crear - Arequipa Peru Regulated 5,863 4,380,215 Microserfin* Panama Regulated 5,366 4,761,096 EDPYME Confianza Peru Regulated 5,290 4,407,154 TOTAL: 60 MFIs 2,312,190 1,857,361,646 * Indicates an MFI that only submitted information on number and volume of microcredits. that are not solely dedicated to microfinance. Their inclusion recognizes the role that some large institutions are playing in the region s microfinance sector. While Banco del Trabajo and Caja Social top this year s list, future leaders may include new entrants into the microfinance market, such as Caixa Econômica Federal and Banco do Brasil. Growth The fastest-growing institutions set records in 2002, especially in Ecuador, where CrediFe broke the tape at 172 percent growth in portfolio and D-MIRO grew 102 percent in number of clients. CrediFe s performance was extraordinary; it administers a portion of the portfolio of Ecuadorian banking giant Banco del Pichincha and benefits from shared infrastructure. Growth, however, can be measured in relative or absolute terms. Relative-growth ratios favor institutions that start with a smaller base; large institutions, in contrast, almost always grow more quickly in absolute terms. Even institutions with lower MICROENTERPRISE AMERICAS

4 FINCA THE TOP 10 IN GROWTH Change in the Change in the Change in Gross Loan Number of Loans the Number MFI Portfolio Outstanding of Loans CrediFe 171.7% 80.9% 7,352 D-MIRO 145.4% 102.1% 3,522 Fundación Nieborowski 97.7% 94.7% 3,944 ProMujer - Perú 92.2% 53.5% 5,342 CMAC - Tacna 81.6% 27.6% 4,311 CMAC - Trujillo 78.5% 40.9% 20,623 Fundación Paraguaya 73.1% 12.3% 658 Compartamos 70.2% 56.3% 52,218 CMAC - Cusco 71.5% 21.6% 4,754 EDPYME Confianza 69.1% 38.1% 1,460 rates reached huge numbers of new clients. Compartamos, Banco del Trabajo and CrediAmigo all ended 2002 with 30,000 more loans than the previous year. Their annual growth in loans eclipses the total number of loans for about half the MFIs on this year s front-runners list. Depth of Outreach This indicator describes the sort of clients that a given MFI serves. Comparing the average loan balance by the per capita income points up the size of a loan relative to the average annual income in the country where the loan is made. A lower ratio suggests deeper outreach. While the leading institutions outreach is indisputable, the ratio is not perfect. Income is distributed unevenly within countries, which distorts the gross-nationalincome-per-capita denominator; a skewed distribution of loans by size as well as client preferences may distort the average loan size (the numerator) as well. Nevertheless, the results reveal clear but interesting leaders. Although village banking MFIs occupy the first three places, a number of the region s largest institutions Compartamos of Mexico and CrediAmigo of Brazil also reach farthest down, demonstrating that scale, depth of outreach and profitability can be complementary goals. The bulk of those institutions services target the poorer regions in their respective countries. TOP 10 MFIs WITH GREATEST DEPTH Adjusted Average Gross National Loan Balance /Gross Income per Capita in National Income MFI Country of Operations per Capita ProMujer - Peru $2, % Compartamos 5, % FINCA - Peru 2, % CrediAmigo 2, % BanGente 4, % WWB - Bucaramanga 1, % WWB - Popayán 1, % BanDesarrollo Microempresas 4, % ADOPEM 2, % WWB - Medellín 1, % THE 10 MOST EFFICIENT Adjusted Operating Expense/Gross MFI Loan Portfolio WWB - Popayán 12.3% WWB - Cali 12.7% Génesis Empresarial 17.1% ADOPEM 18.7% WWB - Medellín 19.0% WWB - Bogotá 19.7% WWB - Bucaramanga 21.2% FINCA - Ecuador 24.8% ProMujer - Bolivia 25.0% FAMA 25.0% * MFIs with average loans less than $ MICROENTERPRISE AMERICAS 2004

5 Voluntary Deposits/Gross MFI Country Savings Loan Portfolio Banco del Trabajo Peru $138,452, % Banco Solidario Ecuador 103,570, % Solución Peru 77,518, % CRAC - Arequipa Peru 67,547, % BancoSol Bolivia 62,416, % CMAC - Piura Peru 60,871, % MiBanco Peru 41,656, % CMAC - Trujillo Peru 38,821, % Caja Los Andes FFP Bolivia 37,499, % PRODEM FFP Peru 35,413, % Savings Latin America s microfinance sector has reached a new benchmark: the largest institutions mobilize more than $100 million in deposits. Interestingly, almost all the leaders are in Bolivia and Peru; the largest Peruvian CMACs mobilize more than $50 million, despite their limited operating areas. Regulatory environments undoubtedly play an important role in the provision of savings services. With the exception of a couple of institutions, THE TOP 10 MFIs IN SAVINGS PORTFOLIO these MFIs fund a large percentage of their loan portfolios with savings. These leaders are true financial intermediaries. Although savings is perhaps the most important service to clients of modest means helping them build financial assets and mitigate risk measuring savings mobilization is still difficult in a regional industry that has historically focused on credit. Currently there is not enough comparable data to measure a complete suite of indicators for the MFIs participating in this exercise. Two indicators, total deposits and deposits to loans, describe the volume of the savings portfolio and the relative intermediation of savings to fund the loan portfolio, respectively. Efficiency Efficient MFIs keep the cost of services low. The operatingefficiency ratio shows the percentage cost of every dollar in the loan portfolio. This ratio is influenced by the geographic relationship of clients and the MFIs, by accessible client information and especially by average loan size. To isolate the effect of the latter, the top 10 MFIs with average loan balances above and below $500 are presented separately. FIE of Bolivia consistently has lower costs than its competitors. Its performance ratios are equivalent to those of wellmanaged cooperatives. All the institutions with average balances above $500 spend less than MFIs WITH LOANS <$500* Adjusted Loans per Average Staff Loan Balance Member $ THE 10 MOST EFFICIENT MFIs WITH LOANS >$500* Adjusted Operating Adjusted Loans per Expense/Gross Average Staff MFI Loan Portfolio Loan Balance Member FIE FFP 10.4% $1, CMAC - Tacna 12.2% CMAC - Cusco 12.2% 1, BancoSol 12.2% 1, CMAC - Piura 12.8% Caja Los Andes FFP 13.6% 1, CMAC - Arequipa 13.7% 1, Fundación Nieborowski 14.2% CMAC - Ica 15.7% Apoyo Integral 16.0% * MFIs with average loans greater than $500 MICROENTERPRISE AMERICAS

6 TOP 20 WITH LEAST RISK Regulated MFIs PAR Over MFI 30 Days Compartamos 1.1% CMAC - Tacna 1.1% CMAC - Cusco 1.3% FINDESA 1.3% Solución 1.8% CMAC - Trujillo 1.8% CMAC - Piura 2.2% MiBanco 2.9% EDPYME Confianza 3.3% PRODEM FFP 3.4% IDB/HEINZ Non-Regulated MFIs PAR Over MFI 30 Days ProMujer - Peru 0.0% ProMujer - Bolivia 0.1% CRECER 0.5% ProMujer - Nicaragua 0.7% FINCA - Peru 0.9% WWB - Bucaramanga 0.9% WWB - Popayán 0.9% WWB - Cali 1.0% FAMA 1.1% FINCA - Ecuador 1.2% 20 cents for every dollar in the loan portfolio. The leading institutions with average loan balances of less than $500 achieve similar results. Such success, however, tapers off quickly: Only a handful of institutions with smaller loan sizes break the 20-cent barrier. Women s World Banking (WWB) Popayán tops the list among the non-regulated institutions in efficiency and even compares well with regulated institutions making much larger loans. Each staff member serves an average of 430 customers. Since personnel costs constitute the main expense for most MFIs, it is not TOP 25 MOST PROFITABLE MFIs Adjusted Adjusted Financial Return on Return on Self- MFI Equity Assets Sufficiency CrediAmigo 72.3% 2.8% 105.1% Compartamos 53.1% 17.3% 172.1% CMAC - Arequipa 52.0% 7.2% 159.8% CMAC - Cusco 44.0% 6.2% 154.1% CrediFe 43.1% 3.1% 118.2% CMAC - Piura 39.5% 4.4% 139.6% Banco del Trabajo 39.1% 4.2% 116.4% CMAC - Sullana 38.0% 6.2% 135.1% Fundación José Nieborowski 35.3% 10.7% 163.9% CMAC - Trujillo 32.7% 5.0% 136.7% Solución 30.6% 6.8% 130.5% CMAC - Tacna 29.4% 4.9% 138.3% ADOPEM 27.9% 11.4% 156.2% Crear - Arequipa 27.7% 5.4% 128.7% WWB - Popayán 27.2% 16.9% 184.0% MiBanco 25.8% 6.3% 128.4% WWB - Bogotá 24.9% 8.3% 130.7% FIE FFP 23.1% 3.5% 124.0% WWB - Cali 22.5% 8.4% 135.8% Caja Los Andes FFP 18.4% 1.9% 112.1% WWB - Medellín* 17.9% 6.9% 124.9% WWB - Bucaramanga* 14.7% 4.7% 116.1% ProMujer - Perú* 13.0% 7.5% 128.3% ProMujer - Bolivia* 8.7% 6.3% 134.5% BanDesarrollo Microempresas* n/a 8.2% 139.7% * This institution s return on equity (AROA) is comparable to the AROA of the first 20 institutions of this list. 20 MICROENTERPRISE AMERICAS 2004

7 surprising that the most productive institutions are more likely to be the most efficient. Asset Quality IDB/HEINZ The gross loan portfolio is an MFI s most important asset, accounting for 70 percent of total assets on average. Portfolio quality is critical to generate revenue, reach more clients, keep funding costs low and expand the asset base. Portfolio at risk (PaR30) measures the outstanding principal balance of loans with at least one installment past due by a determined number of days in this case, 30. Village banking institutions, and especially the ProMujer affiliates, lead most others in terms of asset quality. A number of these institutions track late loans at the group level, not the individual level. In this context, the achievements of the WWB affiliates are even more impressive. They lend to individuals, and their loan officers carry the largest caseloads in the region, if not the world. Portfolio at risk is higher among the top 10 regulated institutions, with the leaders Compartamos and CMAC Tacna tied at 1.1 percent and the others ranging between 1.1 percent and 3.4 percent. Profitability Which are the most profitable institutions? And just how profitable are they? It depends on the yardstick. Adjusted returns on assets (AROA) and adjusted returns on equity (AROE) are both influenced by scale. AROE is also influenced by leverage. Because leverage varies greatly among MFIs, both ratios are critical in measuring profitability across institutional types. Financial selfsufficiency, in contrast, is influenced only by revenue and expenses. The ratios are adjusted by imputing financing costs for institutions with subsidized financing and standard provisions for bad debt. Four of the five MFIs that make the top 20 AROA list but not the top 20 AROE list are nonregulated institutions, showing important differences in leverage. The five MFIs that made the top 20 for AROE but not AROA operate at below-market rates (Credi- Amigo) or in very competitive markets where margins are low. The list of the 20-plus frontrunners in profitability sends a critical message to the region s MFIs: No single legal status, loan methodology, country environment or target market determines profitability. Experience appears to be the only attribute almost all of them share. Latin America s microfinance pioneers show no sign of slowing. Yet younger institutions, from the smaller ProMujer Peru to the immense Banco del Trabajo, will increasingly give the pioneers a run for their money literally. JARED MILLER AND JOÃO FONSECA Would you like to see your institution on this list? Please contact the MIX or the IDB to be included in the 2003/2004 list. For more information on the definitions and methods used, visit: or Methodological Note: The following analysis is consistent with analytical processes of the MIX s MicroBanking Bulletin. All data must be of sufficient quality and detail to stand up to critical scrutiny. Financial data are reclassified to a standard financial statement presentation. To account for varied institutional and contextual factors, the data are adjusted for inflation and to reflect a minimum cost of funds and loan loss provisioning policy. Adjusted data allow for more accurate comparisons but can vary greatly from the unadjusted data normally calculated by MFIs. Only loan and portfolio information from the first list remain unadjusted. Microfinance programs and institutions within larger entities must also provide reliable allocations of income statement items to be eligible for the subsidiary top 10 lists. Otherwise, they are only eligible for the lists based on volume. Institutions that submitted data for the lists based only on volume are listed with an asterisk (*). Following the methodology of the MicroBanking Bulletin, the analysis uses a definition of microfinance based on the average size of a financial product relative to the average national income per person (GNI per capita), with a ceiling equivalent to $2,000. This classification does not generally distinguish between the destination or use of the loan, due to the fungible nature of money and the impossibility of rigorously identifying microenterprise credit for all institutions. Not all institutions could provide audited and approved 2003 financial statements before the submission deadline. To avoid comparison of different financial years, all data are for financial year-end Some institutions have structures that hamper tracking their results. BanDesarrollo is a unit within the Banco del Desarrollo. It is the only MFI in the lists that, because of its organizational structure, does not produce audited financial statements. It also recognizes no fixed assets. Despite this handicap in the adjustment for inflation, its returns are high. Funds in Administration are included in the loan portfolios of CrediFe, Fondo de Desarrollo Local, Apoyo Integral and Fundación José Nieborowski. Financiera Solución was absorbed by Banco de Crédito of Peru in MICROENTERPRISE AMERICAS