Benchmarking Microfinance in Eastern Europe and Central Asia 2006

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1 Microfinance Information exchange Benchmarking Microfinance in Eastern Europe and Central Asia 2006 A report from the Microfinance Information exchange, Inc. Table of Contents Introduction ECA in Global Context Growth of Microfinance in ECA Performance of ECA MFIs Concentration and Trend Data Financing of MFIs in ECA Conclusion Data and Data Preparation Indicator Definitions ECA Tables Figure 1 20,000 16,000 Low outreach for ECA MFIs (MBB data). Active Borrowers by Region Introduction Microfinance in Eastern Europe and Central Asia (ECA) continued its slow yet steady growth in 2006, with loan balances ever increasing and regulated financial institutions, especially banks, playing larger roles. Much of the growth of microfinance in ECA has been funded by external sources, with most institutions unable to mobilize savings. In developed microfinance sectors, such as Bosnia, local financial markets have begun to replace donor support, but this has come with the challenges of higher costs and more rapid turnover of funds. However, the most developed and competitive microfinance sectors in the region have also seen the most rapid overall decreases in expenses and the strongest performance. The 2006 MBB benchmarks cover 126 institutions. A slightly larger set of about 170 institutions participate in the MIX Market. The MBB benchmark institutions cover 1.7M borrowers and 2.6M savers, while the set of over 170 MIX Market participants from the region covers only a marginally broader range of 1.8M borrowers and 2.7M savers. ECA in Global Context 12,000 8,000 4,000 - ECA Africa LAC MENA Asia Source: 2006 MBB benchmarks. Low population density and higher income levels lead to the two defining characteristics of microfinance providers in Eastern Europe and Central Asia: low outreach and large loan balances, as seen in Figures 1 and 2, with an unclear boundary between microfinance and SME finance. Population density in ECA overall is below 20 persons per square mile, the lowest of any region in the developing world (and less than 1/10 the level in South Asia). Overall poverty levels are lower than in other regions, with less than 20 percent of

2 2 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Figure 2: 1,800 1,600 1,400 1,200 1, Large loan balances for ECA MFIs (MBB data). Avg. Loan Balance per Borrower (USD) by Region ECA Africa LAC MENA Asia Source: 2006 MBB benchmarks. the population living under 2 USD per day (compared with almost 80 percent in Africa and South Asia). A culture of financial intermediation only began to take root in some of these countries after the fall of Communism, and consequently microfinance institutions in Eastern Europe and Central Asia are younger than in any other region - with a median age of seven years and no institution older than 16 years. This has allowed microfinance providers to play a substantial role in financial sector development. In several countries in ECA, total assets for the microfinance sector now rival the commercial bank sector, with a number of microfinance institutions also ranking among the largest of all financial service providers in the country. Growth of Microfinance in ECA The 1.8M borrowers covered by this year s survey represent an increase in outreach from 2005 of 35 percent or just over 450,000 borrowers. The total loan portfolio in the region grew from just over 3 billion USD to more than 4.5 billion USD, a 50 percent increase. Median growth rates per institution were just over 20 percent (in borrowers) and 50 percent (in GLP). The differences between median and aggregate figures indicate that growth is not equally distributed across all institutions and across all market segments. The most rapid growth continued to occur in the Balkans, followed closely by the Caucasus and Central Asia, as seen in Table 1. Institutions in Central and Eastern Europe and Russia lagged behind slightly, although all regions saw outreach increase by near 25 percent, and aggregate growth in Russia outstripped these levels with many new entrants into the market. Looking at institutional charter, virtually all of the growth occurred at banks and NBFIs 61 percent of the increase in outreach occurred at banks, with another 36 percent coming from NBFIs (who make up over half of all the institutions participating). Credit unions and the few remaining NGOs saw little individual expansion. Institutional growth is clearly linked with legal form, with the most rapid expansion seen in those countries where banks and NBFIs are most dense. Since banks tend to work with higher-income populations - banks showed loan balances on average 3 times higher than at other institutional types - these increases in outreach occurred largely within those same market segments. MFIs with international support have demonstrated the strongest growth, as shown by an analysis of institutions founders and donors. Over half of the 180 institutions participating on MIX Market from ECA can be considered locally run and founded i.e. they did not benefit from substantial donor support at start-up and are not members of international NGO affiliate networks (such as FINCA or World Vision). However, less than 15 percent of the total market share and only 11 percent of the growth in outreach during the past year occurred at these institutions, with an average growth of less than 600 borrowers per MFI. By far the most growth occurred at two groups of institutions: MFIs founded by international donors or NGOs, and at banks, which typically also benefited from substantial donor support for delivering microfinance products. Thirty-six percent of the growth in the region is from MFIs with international founders or networks, with an additional 29 percent of the total growth in outreach occurring at the 10 ProCredit affiliates in the region. Institutions with international NGO founders have had the deepest outreach, with average loan balances below 100 percent GNI per capita, perhaps due to stronger reinforcement of a development mission. Locally-founded MFIs reach a slightly broader market segment, with ALB/ GNI levels of 140 percent on average. Again, the largest share of growth is at those institutions reaching higher-in-

3 Benchmarking Microfinance in Eastern Europe and Central Asia Table 1: Growth (absolute and allocation) by charter, region, and founder. Market Share Growth Rate Percent of Total Growth Bank 57 % 39 % 61 % Credit Union 3 % 7 % 1 % NBFI 34 % 38 % 36 % NGO 6 % 11 % 2 % Total 35 % 100 % Balkans 32 % 41 % 35 % Caucasus 21 % 40 % 23 % CEE 10 % 31 % 9 % Central Asia 13 % 34 % 13 % Russia 24 % 27 % 20 % Total 35 % 100 % Int l NGOs 38 % 32 % 36 % Locally Run 13 % 27 % 11 % ProCredit 24 % 45 % 29 % Other Banks 25 % 36 % 25 % Total 35 % 100 % FI 57 % 40 % 62 % Non FI 43 % 30 % 38 % Total 35 % 100 % Source: 2006 MIX Market data. Table 2: Largest MFIs in ECA MFI Country Charter Total Number of Borrowers Avg. Loan Balance/GNI Per Capita Khan Bank Mongolia Bank 234, % ProCredit Bank Serbia Serbia Bank 87, % ACBA Armenia Bank 61, % KMB Russia Bank 58, % ProCredit Bank GEO Georgia Bank 58, % XacBank Mongolia Bank 56, % ProCredit Bank KOS Kosovo Bank 52, % FINCA - AZE Azerbaijan NBFI 49, % ProCredit Bank UKR Ukraine Bank 49, % ProCredit Bank BGR Bulgaria Bank 48, % Grand Total 757, % Source: 2006 MIX Market data. come market segments. Table 2 shows the 10 largest institutions in the region - who account for 42 percent of the total outreach - and their respective average outstanding loan balance levels. All but one are banks.

4 4 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Performance of ECA MFIs Overall profitability indicators for the region remained positive and stable in 2006, with median returns on assets of 1.25 percent and returns on equity at 5.35 percent. Operating expenses decreased at most institutions, while financial expenses and loan loss provision expenses saw small increases. Financial expenses for ECA were the highest of any region, due to the increased presence of commercial financiers and the higher inflation levels. Yield levels generally declined, but institutions increased asset allocation levels slightly, leading to higher total loan revenues. Careful management of delinquency means that PAR levels are also among the lowest globally, which may satisfy risk-averse investors but also could be a factor in the limited outreach for the region. Profitable institutions in ECA tended to be those that reached the most borrowers with the smallest loans. Financially self-sufficient institutions at each scale were always larger and reached further down market than their non-self sufficient peers. For small and medium MFIs, expense levels were similar, as seen in Figure 3, and the key to higher returns was cost-recovering interest rate levels. At large-scale MFIs however, revenues and yield levels were similar for FSS and non-fss MFIs, and the main gains in efficiency appear to be from cost-cutting. Smaller and younger MFIs may be able to gain most from appropriate pricing, but as they grow and potentially compete with other institutions, cost-cutting will reap the most benefits. 35% 25% 15% 1 Figure 3: 5% ECA ECA Small Small Non FSS FSS Operating Expense/Assets Financial Expense/Assets Revenues and expenses by scale and self-sufficiency. Source: 2006 MBB benchmarks. ECA ECA Medium Medium FSS Non FSS ECA Large FSS ECA Large Non FSS Provision for Loan Impairment/Assets Financial Revenue/Assets Concentration and Trend Data In some markets, growth was due to increases in outreach at existing institutions. In markets where barriers to entry were lower, particularly in Central Asia, growth was also due to a proliferation of new MFIs, often locally funded. Survey data compiled by the Central Asia Microfinance Center counted roughly 1,300 registered microfinance providers in Central Asia in 2005, and approximately 1,100 institutions in However, almost 50 percent of the market was accounted for by the leading 25 MFIs, representing just 2 percent of all registered institutions in Central Asia. In ECA overall, the leading 25 institutions (15 percent of all MFIs) accounted for more thantwothirds of all borrowers. As the previous figures indicate, many of the local start-ups havehad little impact on aggregate outreach. The proliferation of institutions also presents further challenges for regulators and for mobilizing investor capital. In 2006, there were more closures than mergers of institutions in the region, which does not present a positive indicator for the long-termsustainability of these smaller start-up institutions. The unparalleled transparency within the region allows us to draw conclusions at the sector and country level, and to link these broader views with individual performance. As seen in Figure 4, market share (based on total borrowers) has become increasingly concentrated throughout the region over the past few years. 1 Large institutions are growing faster than small institutions. The lowest levels of market concentration are seen in the Balkans and Caucasus. Levels are also low in Russia as several bank and NBFI institutions have grown rapidly, although the inclusion of aggregate figures for the large credit union sector would show a different picture. Lagging behind were Central and Eastern Europe, where market share is increasingly being swallowed by the larger banks, and Central Asia, where a set of large donor-founded institutions lead the sector, although overall concentration has decreased since Market concentration levels are based on calculation of the normalized Herfindahl index (HHI). Market share is based on total borrowers using MIX Market data. HHI levels using gross loan portfolio to represent market share are similar. The HHI ranges from 0 to 1; higher levels indicate the market share is concentrated at fewer firms, while exactly equal distribution of market share among N firms would yield an HHI of 0. Use of the HHI is here meant solely as a guide to the relative concentration of different markets and their changes over time; the individual levels are not meaningful when calculated across countries and are not intended as definitive.

5 Benchmarking Microfinance in Eastern Europe and Central Asia Figure 4: Market concentration in ECA Figure 5: Revenue and Expense by subregion % 4.3% % % 0.8% Central Asia Caucasus Russia CEE Balkans Balkans Caucasus Central Asia Financial Revenue/Assets Total Expense/Assets CEE Russia AROA Source: 2006 MIX Market data. Source: 2006 MBB benchmarks. Looking at market concentration and competition also provides a further link with performance. The dense, competitive markets in the Balkans saw the strongest performance - rapid decreases in both operating expenses and yields (without substantial corresponding increases in loan balances). As these institutions became more efficient, the cost to the client decreased. In Central and Eastern Europe, institutions reduced operatingexpenses, but overall performance suffered in an environment where many commercial banks offered similar services at a lower cost, forcing down yields for non-bank MFIs. These higher income countries, which also tended to have less competitive microfinance sectors, had worse performance, as seen in Figure 5. Margins were similarly narrow for institutions targeting higherincome market segments. As income levels and financial sector depth increased, MFI yields decreased, often faster than the MFIs could make efficiency gains. The Balkans, and especially Bosnia, were again the exceptions. Institutions in Central Asia and the Caucasus also saw rapid decreases in operating expenses, albeit from a much higher starting point. There was, however, a 10 percent gap in median yield levels between Eastern Europe and Central Asia and the Caucasus. Both regions had some of the highest yield levels globally, and in the Caucasus there was little to no decline in yields over time. This is possibly linked to the generally high inflation levels in those countries,which neared 10 percent in recent years. In Russia, growth and increasing efficiency are closely linked with legal form. Credit unions or other institutions in Russia with proscribed geographic mandates saw little decline in expenses or expansion in outreach (for borrowers or savers),but this trend is less true at those MFIs with broader outreach. There was substantial variation in performance by charter and subregion, but the relative positions have been stable over time, as seen in the trend data for each subregion and charter displayed in Figures The stability of these indicators over time demonstrates the importance of legal environment, infrastructure and other country-level factors in determining the performance of microfinance institutions and the scope of microfinance outreach.

6 6 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Figure 6: Median number of active borrowers by subregion Figure 8: Average loan balance per borrower/gni per capita by subregion 10, , , , , Balkans Caucasus Central Asia Balkans Caucasus Central Asia CEE Russia CEE Russia Source: MIX Market data for 167 MFIs. Source: MIX Market data for 167 MFIs. Figure 7: Median number of active borrowers by charter Figure 9: Average loan balance per borrower/gni per capita by charte 40, , , , Bank NBFI/NGO Credit Union Bank NBFI/NGO Credit Union Source: MIX Market data for 167 MFIs. Source: MIX Market data for 167 MFIs. For members of international NGO networks or others with substantial foreign support, total expenses were lower than at locally-run institutions, as seen in Figure 19. However, operational expenses were in fact lower at locally-run MFIs, with identical expenditures on personnel, within banks and non-banks. Financial expenses made up the difference with much lower financial costs for MFIs benefiting from international support networks. The lower financial expenses made the difference in overall returns and financial revenues.

7 Benchmarking Microfinance in Eastern Europe and Central Asia Figure 10: Debt to equity ratio by subregion Figure 12: Borrowers per staff member by subregion Balkans Caucasus Central Asia Balkans Caucasus Central Asia CEE Russia CEE Russia Source: MIX Market data for 167 MFIs. Source: MIX Market data for 167 MFIs. Figure 11: Debt to equity ratio by charter Figure 13: Borrowers per staff member by charter Bank NBFI/NGO Credit Union Source: MIX Market data for 167 MFIs. Bank NBFI/NGO Credit Union Source: MBB panel data.

8 8 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Figure 14: Revenue and expense structure for Balkans Figure 17: Revenue and expense structure for CEE % 25% 35% 15% 25% 1 15% 5% 1 5% Figure 15: Revenue and expense structure for Caucasus Figure 18: Revenue and expense structure for Central Asia % 35% 25% 25% 15% 15% 1 1 5% Figure 16: 5 45% 35% 25% 15% 1 5% Financial Expense/Assets Operating Expense/Assets Revenue and expense structure for Central Asia Source: Figures MBB panel data. Provision for Loan Impairment/Assets Financial Revenue/Assets 5% Financing of MFIs in ECA Savings has been termed the forgotten half of microfinance, and this perception is easy to perpetuate in the credit-driven sectors of ECA. Few of the institutions surveyed provided savings services, with even some banks and credit unions forgoing these services. Those institutions that did provide savings services tended to provide largebalance savings, rather than retail micro-deposits. Average savings balances were close to USD 2500; at banks, the number of savers generally exceeded the number of borrowers, with a closer match at credit unions. The general lack of savings mobilization led to a reliance on external financing for most MFIs. In most markets this exacerbated the need to rely on international donors and investors, rather than local resources, although local financing has increasingly filled the gap in more developed markets such as Bosnia and Herzegovina. The large loan balances have also led to high dollar amount portfolios at a wide range of institutions, which has been attractive for debt investors in the region.

9 Benchmarking Microfinance in Eastern Europe and Central Asia Overall financial structure indicators are catching up with other regions of the world - the median debt/equity level of 2.1 is behind all regions except for MENA, with most sub regions in ECA still below 2.0 themselves. The most heavily leveraged group of institutions is banks, although their growth has been roughly equally supported by savings as well as debt. Figure 19: 25% 15% Revenue and expense structure by types of founders The outstanding debt for ECA MFIs came in roughly equal proportions from three main sources: DFIs (development financial institutions, such as IFC or EBRD), microfinance investment funds and commercial banks, each providing between percent of all debt financing. Smaller portions (less than 10 percent) came from local governments or founder NGOs. Two-thirds of all financing came from foreign sources, while roughly the same proportion was in foreign currency (regardless of source). The majority of funding was still allocated to the Balkans and CEE, although these regions also had larger loan portfolios and longer institutional histories. Average interest rate levels were roughly 8.25 percent for the region, but again with substantial regional variation. 2 2 Interest rate and terms are weighted averages, based on outstanding amounts, without adjustments. 1 5% Local - non-bank IntlNGO Local - bank ProCredit Financial Expense/Assets Operating Expense/Assets Source: 2006 MBB benchmarks Provision for Loan Impairment/Assets Financial Revenue/Assets MFIs operating in countries with deeper financial sectors had an easier time mobilizing external financing - both from local and international sources. The cost of debt additionally increased as local financial sectors weakened, as shown in Figure 20, with the highest interest rates in the Caucasus and Central Asia (near to 11 percent on average Figure 20: Cost of debt v. financial depth 12% % 0.5 Cost of Debt 6% 0.25 Financial Depth 3% 0 Albania Croatia Bulgaria Bosnia Mongolia Ukraine Moldova Macedonia Russia Romania Kazakhstan Kyrgyzstan Georgia Armenia Azerbaijan Tajikistan Source: 2006 MBB benchmarks; weighted average cost of debt for 86 MFIs with borrowings.

10 10 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 in the former Soviet republics of Central Asia). Interest rate levels were by far the lowest in the Balkans, below 7 percent. Cooperatives had the lowest interest rates (on debt), while NGOs had the highest cost of funds. Banks and NBFIs were able to mobilize longer-term financing than co-operatives or NGOs (roughly 5-6 years vs. 4 years on average), with governments and DFIs offering the longest-termfinancing - approaching 10 years from government sources - with the shortest terms from commercial banks (around 4 years) and microfinance investment funds (4.5 years). Conclusion In 2006, the commercial financial sector continued to influence the performance and growth of microfinance institutions in ECA in myriad ways, a relationship which will likely only deepen over time as international donors and investors take diminished roles and as local financial sectors develop. Deeper financial sectors led to lower costs of funds for MFIs, lower yield levels, and generally worse performance for non-bank MFIs reaching further down-market. At the present time international linkages and large loan portfolios remain the best predictors of growth in the sector. Growth has been strongest for banks, with several microfinance banks now ranking among the leading financial institutions in their countries. Due to their higher loan balances and generally stable performance, ECA MFIs have also seen rapid growth in external investment to the sector (primarily debt investment), although these investments consistently support those institutions that reach higher-income market segments. While the past few years have seen rapid growth of locally-run start-ups and other institutions in some markets, their aggregate impact has been limited. Credit unions similarly make up a large share of the market by numbers of institutions, but this sector has seen more instances of declining outreach (or closure of institutions) than of growth. Some of the more developed markets - such as Bosnia - indicate potential bifurcation in the sector, between institutions choosing a mixed product offering (microfinance and SME loans, enterprise and consumer lending), moving towards bank charters; with other institutions remaining more focused on particular target markets and with less interest in transformation. How will the allocation of resources to microfinance institutions in ECA influence the long-term development of credit, savings and other financial services targeted to low income populations? The evidence to date shows the strongest growth (although weaker performance) at institutions working with higher-income populations, with limited savings outreach, often partially replaced by donor resources. Two Cases of Regulatory Reform The impact of regulatory reform and the appropriate regulatory regime for MFIs have been central questions for microfinance worldwide. We highlight two sectors - Armenia and Uzbekistan - in which MFIs underwent required registrations during 2006, with several requirements for successful registration. In Armenia, this resulted in the successful registration of all major microfinance providers. In Uzbekistan, this resulted in the almost complete collapse of the NGO microfinance sector, with the closure of several leading institutions and substantial disruptions to operations at those that managed to weather the storm. Armenian MFIs saw increased external financing, some declines in outreach and little change in target market. Since many institutions were still in the process of transferring assets from the original NGO ( Charity Foundation ) form to Figure 1.1: Expense and revenue structure in Armenia 35% 25% 15% 1 5% Financial Expense Ratio Loan Loss Provision Expense Ratio Operating Expense Ratio Financial Revenue Ratio Source: 2006 MBB benchmarks

11 Benchmarking Microfinance in Eastern Europe and Central Asia Figure 1.2: 140, , ,000 80,000 60,000 40,000 20,000 0 Source: 2006 MIX Market Figure 1.3: PAR > 30 (USD) for Uzbekistan 2003 Gross Loan Portfolio/Total Assets Uzbekistan 2003 the new NBFI ( Universal Credit Organization ) entity at year-end, it is still too early to see substantial changes in institutional character in Armenia. As seen in Figure 1.1, there were minor up-ticks in financial expenses and loan loss expenses, with decreasing yields (although increasing financial revenues, partly due to appreciation of AMD assets), but overall profitability levels were not affected. In Uzbekistan, the situation was unfortunately a good deal more challenging. Comparative outreach for 2005 and 2006 is displayed in Table 1.1. While these figures are only for year-end, it is clear that many institutions saw substantial declines in outreach, especially those with international NGO founders. Since that time, several MFIs have closed entirely - including FINCA - UZB, Barakot and FVRM. Many of the institutions that remained underwent a difficult period. Figures 1.2 and 1.3 show changes in portfolio at risk and GLP/Total Asset ratios. Portfolio at risk indicators increased rapidly, as borrowers likely sensed the precarious status of their lenders or as institutions were unable to devote resources to collection. GLP/Total Asset ratios declined as well. Since these MFIs are credit-only institutions, one might expect gradual increases as they mature. Instead, asset allocations worsened as MFIs were often able to hold on to their assets, but stopped or severely curtailed lending activities. Recent news from Uzbekistan has been more encouraging, with the government involved in the process of registering new institutions, so coming years may bring better results. Table 1.1: Changes in outreach in Uzbekistan MFI name 12/05 clients 12/06 clients percent change Barakot 10,195 9,542-6 % Daulet 4,991 5, % KKBWA 3,775 3,750-1 % FINCA 2,728 4, % FVRM 4,439 2, % BWA Kashkadarya 1,654 1,803 9 % NWMT 1, % JDA % SABR % STG 1 6 ACTED 4,000 0 all MFIs 34,507 28, % Mikrokredit Bank - 21,200 Italics not MIX Market participant Source: MIX Market and MTA (Association of Microfinance Organizations of Uzbekistan)

12 12 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Microfinance Banks in ECA Among the most notable characteristics of microfinance in ECA is the dominant role that banks have played. Of the ten largest institutions in the region, 9 are banks. Several other leading organizations in the region have also already transformed into banks or have plans to do so - last year saw bank operations begun by FORUS Bank in Russia, GLP, millions USD Figure 2.1: Loan Portfolios of all commercial banks vs. microfinance banks 2003 Commercial Banks ProCredit All MF Banks Figure 2.2: Gross Loan Portfolio/Total Asset ratios for commercial and microfinance banks Opportunity Bank of Serbia and Aiyl Bank in Kyrgyzstan (formerly KAFC). In addition, several commercial banks have implemented downscaling programs to offer microfinance products along their regular suite of products, often through the support of the European Bank for Reconstruction and Development (EBRD). As shown in the section on growth, the majority of growth in the region during the past year can be attributed to increased outreach from microfinance banks. While banks have by far the largest client base in the region, they also typically have much higher average outstanding loan balances with a median value of USD 3,800 for the region, which is more than twice the level at MFIs with different legal status. Clearly, microfinance banks reach a different market segment than non-bank providers and the expansion of financial services has been most rapid for these market segments. Not only are microfinance banks among the largest microfinance providers in the region, they are often among the largest financial institutions, period. By analyzing commercial bank data for the period we can compare the characteristics of commercial banks with microfinance banks in the region. 3 Total loan portfolios at microfinance banks still lag all commercial banks, but the levels are moving closer, with median microfinance bank portfolios nearing USD120 million, while commercial banks were around twice that level in A notable subset of microfinance banks in the region are the 10 ProCredit affiliates, largely active in Eastern Europe, who are even closer to commercial bank levels as show in Figure 2.1. Growth rates have been comparable, although slightly faster for microfinance banks, with both groups seeing an approximate doubling of their portfolios from Growth for commercial banks has been the fastest in the Caucasus and Central Asia as their financial sectors begin to catch up, a trend which has been mirrored in the growth of the microfinance sector in these subregions Microfinance banks are more successful at providing credit than commercial banks, but have more difficulty in raising deposits, as shown in Figures 2.2 and 2.3. GLP/Total Asset levels are barely above 50 percent for most commercial Commercial Banks ProCredit All MF Banks 3 Commercial bank data from Bankscope for 343 banks from

13 Benchmarking Microfinance in Eastern Europe and Central Asia Figure 2.3: Figure 2.4: Deposits/Total Asset ratios for commercial and microfinance banks 2003 Commercial Banks All MF Banks ProCredit Revenue sources and product allocations by charter Bank Credit Union NBFI NGO banks, while microfinance bank levels are generally between percent (which is still below global norms for microfinance). At the same time, deposits/assets ratios for commercial banks are much higher than for microfinance banks - between percent at commercial banks, and generally below 40 percent for microfinance banks. Given the similar degrees of leverage within both sets of institutions (both have debt/equity ratios around 7.0), this indicates that much of the lending activity at microfinance banks is still funded by donors and other microfinance investors. Depositors either have more trust in commercial banks, the existence of non-deposit funding for microfinance banks has given them less incentive to offer retail savings products or small-balance retail deposits do not provide sufficient funding. The historical focus on micro-credit within the microfinance sector appears to have carried over to this set of institutions as well. Banks also have the narrowest margins of any microfinance providers in the region, with median returns on assets less than 1.0 percent. However, due to high degrees of leverage, returns on equity are higher, almost 8 percent. Banks are also unique in that portfolio yield is not the sole source of income, as seen in Figure 2.4. Bank yields are by far the lowest, but banks are also able to earn revenue through other means either by providing additional financial services like remittances or leasing or by investing their substantial liquidity reserves. The ratio of GLP/assets for ECA microfinance banks - 63 percent - is lower than the global norm of 70 percent and may indicate that some banks in the region are overly cautious in their asset allocation. The lack of intermediation by some microfinance banks is especially troubling when the large amounts of donor funding held at these same institutions are taken into consideration - donor funds may be replacing deposit mobilization, with more than 1 out of every 3 dollars being channeled into liquidity investments rather than onlending to microfinance clients. Other Financial Revenue Savings/Assets Income from Loans GLP/Assets

14 14 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Data and Data Preparation For benchmarking purposes, MIX collects and prepares MFI financial and outreach data according to international microfinance reporting standards as applied in the MicroBanking Bulletin. Raw data are collected from the MFI, inputted into standard reporting formats and crosschecked with audited financial statements, ratings and other third party due diligence reports, as available. Performance results are then adjusted, using industry standard adjustments, to eliminate subsidy, guarantee minimal provisioning for risk and reflect the impact of inflation on institutional performance. This process increases comparability of performance results across institutions. MIX would like to thank AMFA (Azerbaijan), CAC (Central Asia), MEDI (Armenia) and RMC (Russia) for their valuable support throughout the year. Eastern Europe and Central Asia MFI Participants 2006 Benchmarks (126 MFIs) ASC Union, BESA, MAFF, ProCredit Bank ALB, PSHM, ACBA, AREGAK, ECLOF ARM, FINCA ARM, Horizon, INECO, KAMURJ, SEF ARM, Aqroinvest, Azercredit, Azeri Star, CredAgro NBCO, Dayaq Credit, FINCA AZE, FinDev, MFBA, MikroMaliyye Credit, Normicro, Viator, Benefit, EKI, LIDER, LOKmicro, MI-BOSPO, MIKRA, Mikro ALDI, Mikrofin, Partner, Prizma, ProCredit Bank BIH, SINERGIJA, Sunrise, UPI, Women for Women, Mikrofond, Nachala, ProCredit - BGR, USTOI, DEMOS, NOA, BAI, Constanta, CREDO, Crystal Fund, FINCA GEO, ProCredit GEO, SBDF, ACF, Arnur Credit, Bereke, KLF, AFK, Atlantic Capital Partners, BZMF, FINCA KOS, KEP, KosInvest, KRK Ltd, ProCredit Bank KOS, Aiyl Bank, BTFF, Elet-Capital, FMCC, FRP, Kompanion, FULM, Horizonti, Moznosti, ProCredit Bank MKD, Microinvest, ProCredit Bank MDA, Credit Mongol, Khan Bank, TFS, XacBank, OBM, Fundusz Mikro, CAPA, LAM, OMRO, ProCredit Bank - ROM, Alternativa, Alteya, Aurora, CEF, Doveriye Amursk, EKPA, FFECC, FINCA - RUS, FORUS, Intellekt, KMB, KVK, Obereg Perm, Rost, SBS, Sodeistviye Pyatigorsk, Sodeistviye Smolensk, Sodruzhestvo, Soyuz, VRFSBS, Agroinvestbank, ASTI, Bank Eskhata, FINCA - TJK, FMFB TJK, Imkoniyat, IMON, JOVID, MLF HUMO, MLF MicroInvest, OXUS TJK, HOPE Ukraine, ProCredit UKR, Daulet, FINCA UZB, AgroInvest, MDF, MicroFins, OBS, ProCredit Bank SRB Peer Group Definition Description Charter Type Bank ECA MFIs with Bank charter type NBFI ECA MFIs with Financial Intermediary charter type Credit Union ECA MFIs with Credit Union / Cooperative charter type NGO ECA MFIs with Non Governmental Organization charter type Age ECA Mature ECA MFIs in operation for more than 8 years ECA Young ECA MFIs in operation for 5 to 8 years ECA New ECA MFIs in operation less than 5 years by country/sub-region Balkans ECA MFIs not operating with Bank charter in Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, and Serbia. Bosnia and Herzegovina ECA MFIs not operating with Bank charter in Bosnia and Herzegovina Kosovo ECA MFIs not operating with Bank charter in Kosovo CEE ECA MFIs not operating with Bank charter in Bulgaria, Moldova, Poland, Romania, and Ukraine Russia ECA MFIs not operating with Bank charter in Russia Caucasus ECA MFIs not operating with Bank charter in Armenia, Azerbaijan, and Georgia Central Asia ECA MFIs not operating with Bank charter in Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, and Uzbekistan Armenia ECA MFIs not operating with Bank charter in Armenia Azerbaijan ECA MFIs not operating with Bank charter in Azerbaijan Georgia ECA MFIs not operating with Bank charter in Georgia Kyrgyzstan ECA MFIs not operating with Bank charter in Kyrgyzstan Tajikistan ECA MFIs not operating with Bank charter in Tajikistan Target Market Low End ECA MFIs with average loan balance per borrower < of GNI per capita or < 150 USD Broad ECA MFIs with average loan balance per borrower of GNI per capita or < 15 of GNI per capita High End ECA MFIs with average loan balance per borrower 15 of GNI per capita or < 25 of GNI per capita SME ECA MFIs with average loan balance per borrower 25 of GNI per capita Financial Intermediation ECA FI ECA MFIs with Voluntary Deposits / Total Assets ECA Non FI ECA MFIs with Voluntary Deposits / Total Assets < Size and Sustainability ECA Small FSS ECA MFIs with < 4 million USD in loan portfolio and with Financial Self Sufficiency 10 ECA Small Non FSS ECA MFIs with < 4 million USD in loan portfolio and with Financial Self Sufficiency < 10 ECA Medium FSS ECA MFIs with between 4 and 8 million USD in loan portfolio and with Financial Self Sufficiency 10 ECA Medium Non FSS ECA MFIs with between 4 and 8 million USD in loan portfolio and with Financial Self Sufficiency < 10 ECA Large FSS ECA MFIs with > 8 million USD in loan portfolio and with Financial Self Sufficiency 10 ECA Large Non FSS ECA MFIs with > 8 million USD in loan portfolio and with Financial Self Sufficiency < 10

15 Benchmarking Microfinance in Eastern Europe and Central Asia Indicator Definitions INSTITUTIONAL CHARACTERISTICS Number of MFIs Age Total Assets Offices Personnel Sample Size of Group Years Functioning as an MFI Total Assets, adjusted for Inflation and standardized provisioning for loan impairment and write-offs Number, including head office Total number of staff members FINANCING STRUCTURE Capital/Asset Ratio Adjusted Total Equity/ Adjusted Total Assets Commercial Funding Liabilities Ratio (Voluntary and Time Deposits + Borrowings at Commercial Interest Rates) / Adjusted Average Gross Loan Portfolio Debt/Equity Ratio Adjusted Total Liabilities/ Adjusted Total Equity Deposits to Loans Voluntary Deposits/ Adjusted Gross Loan Portfolio Deposits to Total Assets Voluntary Deposits/ Adjusted Total Assets Gross Loan Portfolio/Total Assets Adjusted Gross Loan Portfolio/ Adjusted Total Assets OUTREACH INDICATORS Number of Active Borrowers Percent of Women Borrowers Number of Loans Outstanding Gross Loan Portfolio Average Loan Balance per Borrower Average Loan Balance per Borrower/GNI per Capita Average Outstanding Balance Average Outstanding Balance/GNI per Capita Number of Voluntary Savers Number of Voluntary Savings Accounts Voluntary Savings Average Savings Balance per Saver Average Savings Account Balance MACROECONOMIC INDICATORS GNI per Capita GDP Growth Rate Deposit Rate Inflation Rate Financial Depth OVERALL FINANCIAL PERFORMANCE Return on Assets Return on Equity Operational Self-Sufficiency Financial Self-Sufficiency REVENUES Financial Revenue Ratio Profit Margin Yield on Gross Portfolio (nominal) Yield on Gross Portfolio (real) EXPENSES Total Expense Ratio Financial Expense Ratio Loan Loss Provision Expense Ratio Operating Expense Ratio Personnel Expense Ratio Administrative Expense Ratio Adjustment Expense Ratio EFFICIENCY Operating Expense/Loan Portfolio Personnel Expense/Loan Portfolio Average Salary/GNI per Capita Cost per Borrower Cost per Loan PRODUCTIVITY Borrowers per Staff Member Loans per Staff Member Borrowers per Loan Officer Loans per Loan Officer Voluntary Savers per Staff Member Savings Accounts per Staff Member Personnel Allocation Ratio RISK AND LIQUIDITY Portfolio at Risk > 30 Days Portfolio at Risk > 90 Days Write-off Ratio Loan Loss Rate Risk Coverage Number of borrowers with loans outstanding, adjusted for standardized write-offs Number of active women borrowers/ Adjusted Number of Active Borrowers Number of loans outstanding, adjusted for standardized write-offs Gross Loan Portfolio, adjusted for standardized write-offs Adjusted Gross Loan Portfolio/ Adjusted Number of Active Borrowers Adjusted Average Loan Balance per Borrower/ GNI per Capita Adjusted Gross Loan Portfolio/ Adjusted Number of Loans Outstanding Adjusted Average Outstanding Balance/ GNI per Capita Number of depositors with voluntary deposit and time deposit accounts Number of voluntary deposit and time deposit accounts Total value of voluntary deposit and time deposit accounts Voluntary Deposits/ Number of Voluntary Depositors Voluntary Depositors/ Number of Voluntary Deposit Accounts Total income generated by a country s residents, irrespective of location / Total number of residents Annual growth in the total output of goods and services occurring within the territory of a given country Interest rate offered to resident customers for demand, time, or savings deposits Annual change in average consumer prices Money aggregate including currency, deposits and electronic currency (M3) / GDP (Adjusted Net Operating Income - Taxes)/ Adjusted Average Total Assets (Adjusted Net Operating Income - Taxes)/ Adjusted Average Total Equity Financial Revenue/ (Financial Expense + Impairment Losses on Loans + Operating Expense) Adjusted Financial Revenue/ Adjusted (Financial Expense + Impairment Losses on Loans + Operating Expense) Adjusted Financial Revenue/ Adjusted Average Total Assets Adjusted Net Operating Income/ Adjusted Financial Revenue Adjusted Financial Revenue from Loan Portfolio/ Adjusted Average Gross Loan Portfolio (Adjusted Yield on Gross Portfolio (nominal) - Inflation Rate)/ (1 + Inflation Rate) Adjusted (Financial Expense + Net Loan Loss Provision Expense + Operating Expense) / Adjusted Average Total Assets Adjusted Financial Expense/ Adjusted Average Total Assets Adjusted Impairment Losses on Loans/ Adjusted Average Total Assets Adjusted Operating Expense/ Adjusted Average Total Assets Adjusted Personnel Expense/ Adjusted Average Total Assets Adjusted Administrative Expense/ Adjusted Average Total Assets (Adjusted Net Operating Income - Unadjusted Net Operating Income)/ Adjusted Average Total Assets Adjusted Operating Expense/ Adjusted Average Gross Loan Portfolio Adjusted Personnel Expense/ Adjusted Average Gross Loan Portfolio Adjusted Average Personnel Expense/ GNI per capita Adjusted Operating Expense/ Adjusted Average Number of Active Borrowers Adjusted Operating Expense/ Adjusted Average Number of Loans Adjusted Number of Active Borrowers/ Number of Personnel Adjusted Number of Loans Outstanding/Number of Personnel Adjusted Number of Active Borrowers/ Number of Loan Officers Adjusted Number of Loans Outstanding/ Number of Loan Officers Number of Voluntary Depositors/ Number of Personnel Number of Deposit Accounts/ Number of Personnel Number of Loan Officers/ Number of Personnel Outstanding balance, portfolio overdue> 30 Days + renegotiated portfolio/ Adjusted Gross Loan Portfolio Outstanding balance, portfolio overdue> 90 Days + renegotiated portfolio/ Adjusted Gross Loan Portfolio Adjusted Value of loans written-off/ Adjusted Average Gross Loan Portfolio (Adjusted Write-offs - Value of Loans Recovered)/ Adjusted Average Gross Loan Portfolio Adjusted Impairment Loss Allowance/ PAR > 30 Days

16 16 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Eastern Europe Central Asia INSTITUTIONAL CHARACTERISTICS ECA Banks NBFIs Credit Unions NGOs ECA Mature ECA Young ECA New Number of MFIs Age Total Assets 6,777, ,824,288 5,353,600 3,036,907 3,750,783 18,746,508 6,523,192 2,916,459 Offices Personnel FINANCING STRUCTURE Capital/Asset Ratio 31.9% 10.8% 36.2% % 27.1% 47.9% 33.2% Commercial Funding Liabilities Ratio 49.1% 125.4% 46.1% % 64.9% 46.6% 24.8% Debt/Equity Ratio Deposits to Loans % % Deposits to Total Assets % % Gross Loan Portfolio/Total Assets 85.2% 63.4% 87.8% 88.3% 87.2% 87.8% 87.3% 81.3% OUTREACH INDICATORS Number of Active Borrowers 4,690 38,073 4,916 4,015 1,705 7,463 4,916 2,849 Percent of Women Borrowers 46.5% 30.3% % % 43.1% Number of Loans Outstanding 4,717 38,073 4,945 4,015 1,893 7,555 4,945 3,060 Gross Loan Portfolio 5,620, ,422,224 4,583,259 2,974,696 3,649,221 14,257,417 5,472,454 2,482,495 Average Loan Balance per Borrower 1,597 3,814 1,102 1,407 2,205 1,620 1, Average Loan Balance per Borrower/GNI per Capita % 75.8% 50.1% 63.9% % 96.3% Average Outstanding Balance 1,583 3,814 1,047 1,407 2,205 1,584 1, Average Outstanding Balance/GNI per Capita % 75.8% 50.1% 63.9% 63.8% 95.8% 96.3% Number of Voluntary Savers 0 84, Number of Voluntary Savings Accounts 0 84, Voluntary Savings 0 66,566, ,098, Average Savings Balance per Saver 2, , ,492 2,336 1,978 4,384 Average Savings Account Balance , ,492 1,061 1,694 3,991 MACROECONOMIC INDICATORS GNI per Capita 2,570 1,520 1,470 2,570 4,460 2,700 1,474 1,355 GDP Growth Rate 6.4% 5.5% % 5.5% 6.4% 7.5% Deposit Rate 5.6% 5.8% 5.8% 5.2% % 6.6% Inflation Rate 8.2% 7.4% 7.4% 8.3% 9.7% 7.4% 8.2% 8.6% Financial Depth 32.6% 33.4% 21.3% 13.6% 33.4% 33.4% % OVERALL FINANCIAL PERFORMANCE Return on Assets 1.3% 0.9% % 2.8% 1.1% 0.7% Return on Equity 5.4% 7.5% 7.9% % 4.4% 5.2% Operational Self-Sufficiency 124.6% 113.4% 133.6% 144.3% 108.3% 126.2% % Financial Self-Sufficiency 111.2% % 119.1% 97.5% 114.5% 111.1% 104.4% REVENUES Financial Revenue Ratio 25.5% 18.3% 28.7% 26.3% 23.8% 25.1% 25.5% 25.4% Profit Margin 10.1% 9.9% 14.7% 16.1% -2.6% 12.7% % Yield on Gross Portfolio (nominal) 29.3% 20.9% 31.3% 29.7% 25.1% 27.5% 30.1% 28.4% Yield on Gross Portfolio (real) 19.6% 15.4% 23.4% 28.5% 17.3% 18.7% 23.4% 16.9% EXPENSES Total Expense Ratio 25.5% 16.5% 27.2% % 21.1% % Financial Expense Ratio 7.2% 6.8% 7.1% 5.7% 14.7% 6.7% 7.8% 7.2% Loan Loss Provision Expense Ratio 1.3% 0.9% 1.4% 0.9% 0.9% % 1. Operating Expense Ratio 14.3% 8.5% 16.6% 19.6% 10.5% 12.7% 15.7% 17.5% Personnel Expense Ratio 8.3% % 10.2% 4.9% 6.4% % Administrative Expense Ratio 6.3% % 6.4% 6.1% 4.6% 6.4% 7.4% Adjustment Expense Ratio 2.1% 1.3% 2.5% 5.3% % 2.1% 2.6% EFFICIENCY Operating Expense/Loan Portfolio 17.2% 12.5% 19.1% 22.4% 12.4% 14.6% 17.9% 20.9% Personnel Expense/Loan Portfolio 9.4% 6.2% 11.3% 12.3% 5.8% 7.9% % Average Salary/ GNI per Capita % 584.9% 578.2% 238.9% % 606.6% Cost per Borrower Cost per Loan PRODUCTIVITY Borrowers per Staff Member Loans per Staff Member Borrowers per Loan Officer Loans per Loan Officer Voluntary Savers per Staff Member Savings Accounts per Staff Member Personnel Allocation Ratio % 45.6% 58.5% 58.3% 54.2% 43.2% 52.1% RISK AND LIQUIDITY Portfolio at Risk > 30 Days 1.2% 1.2% 1.1% 0.7% 2.8% 1.4% 1.2% 1. Portfolio at Risk > 90 Days 0.6% 0.6% 0.5% 0.6% 1.1% 0.5% 0.7% 0.5% Write-off Ratio 0.5% 0.5% 0.6% 0.5% 1.4% 0.7% 0.5% 0.1% Loan Loss Rate 0.4% 0.3% 0.4% 0.5% 0.6% 0.5% 0.5% 0.1% Risk Coverage 1.2% 210.8% 132.7% 95.7% % 102.9% 132.7%

17 Benchmarking Microfinance in Eastern Europe and Central Asia Eastern Europe Central Asia INSTITUTIONAL CHARACTERISTICS Balkans Bosnia and Herzegovina Kosovo CEE Russia Caucasus Central Asia Armenia Number of MFIs Age Total Assets 14,038,838 17,719,846 4,528,868 6,645,233 2,219,158 3,327,123 2,618,556 4,904,034 Offices Personnel FINANCING STRUCTURE Capital/Asset Ratio 49.7% 27.8% 60.2% 30.1% 10.2% 44.3% 41.5% 51.6% Commercial Funding Liabilities Ratio 40.6% 49.7% 27.9% 36.5% 92.1% 22.9% 35.8% 27.9% Debt/Equity Ratio Deposits to Loans % Deposits to Total Assets % Gross Loan Portfolio/Total Assets 88.6% 90.4% 87.6% % 88.1% 85.9% 76.8% OUTREACH INDICATORS Number of Active Borrowers 6,384 11,611 1,634 2,175 1,072 4,442 4,121 5,471 Percent of Women Borrowers 40.2% 46.5% 19.8% 45.1% 68.1% 43.7% 51.3% 43.4% Number of Loans Outstanding 6,384 14,602 1,634 2,175 1,281 4,442 4,121 5,471 Gross Loan Portfolio 12,845,507 15,907,101 4,044,388 4,400,100 1,964,426 2,948,545 2,094,208 4,197,424 Average Loan Balance per Borrower 1,693 1,583 2,429 2,270 2, Average Loan Balance per Borrower/GNI per Capita 73.8% 58.6% 164.8% 79.8% 57.3% 43.4% 106.9% 44. Average Outstanding Balance 1,693 1,583 2,429 2,243 2, Average Outstanding Balance/GNI per Capita 73.8% 58.6% 164.8% 79.8% 56.9% 43.4% 102.2% 44. Number of Voluntary Savers Number of Voluntary Savings Accounts Voluntary Savings ,094, Average Savings Balance per Saver , ,618 0 Average Savings Account Balance , ,618 0 MACROECONOMIC INDICATORS GNI per Capita 2,700 2,700 1,474 3,450 4,460 1, ,470 GDP Growth Rate % 4.8% 6.4% % 14. Deposit Rate 3.7% 3.7% 2.1% 6.5% % 9.1% 5.8% Inflation Rate 7.4% 7.4% 0.7% 7.3% 9.7% 8.2% 8.6% 2.9% Financial Depth 54.7% 54.7% % 33.4% 16.3% 21.3% 16.3% OVERALL FINANCIAL PERFORMANCE Return on Assets 2.3% 3.7% 4.5% -0.5% -0.5% % Return on Equity % 7.9% -0.6% -2.1% % 20.1% Operational Self-Sufficiency 131.4% 137.4% 134.7% 112.6% 106.9% % 175.2% Financial Self-Sufficiency 113.3% 122.9% 131.2% 102.2% 98.8% 118.7% 120.3% 153.3% REVENUES Financial Revenue Ratio 22.7% 23.5% 22.1% 24.9% 28.9% 34.3% 38.3% 37.6% Profit Margin 11.8% 18.7% 23.8% % 15.7% 16.9% 33.5% Yield on Gross Portfolio (nominal) 25.4% 27.3% 24.7% 27.7% 29.9% 40.2% 42.7% 37.3% Yield on Gross Portfolio (real) 18.3% 18.5% 23.8% % 30.8% 32.6% 33.5% EXPENSES Total Expense Ratio % 22.6% 26.3% 31.1% 29.9% 30.5% 21.8% Financial Expense Ratio 5.1% 6.6% 1.9% 6.5% 15.5% 8.3% 8.7% 3.9% Loan Loss Provision Expense Ratio 1.5% 1.5% 2.2% 1.1% 1.4% 1.2% 1.4% 1.6% Operating Expense Ratio % 15.7% 15.5% 14.4% 18.8% 19.9% 17.4% Personnel Expense Ratio 7.5% 8.4% 7.5% 7.4% 6.3% 10.8% % Administrative Expense Ratio 4.6% 3.8% 8.2% 8.1% 5.5% 7.6% 8.1% 6.3% Adjustment Expense Ratio 1.6% 1.6% 0.4% 2.4% 0.8% 3.7% 3.8% 1.7% EFFICIENCY Operating Expense/Loan Portfolio 14.3% % % 23.3% % Personnel Expense/Loan Portfolio % 9.8% 9.6% 7.5% % Average Salary/GNI per Capita 636.2% 674.1% 844.7% 378.6% 224.2% 511.8% 789.3% 528.7% Cost per Borrower Cost per Loan PRODUCTIVITY Borrowers per Staff Member Loans per Staff Member Borrowers per Loan Officer Loans per Loan Officer Voluntary Savers per Staff Member Savings Accounts per Staff Member Personnel Allocation Ratio 59.1% 65.7% 56.2% 43.5% 56.7% 40.2% 45.1% 43. RISK AND LIQUIDITY Portfolio at Risk > 30 Days 0.9% 0.8% 1.8% 2.8% 1.7% 0.9% 0.9% 1.4% Portfolio at Risk > 90 Days 0.6% 0.3% 0.9% % 0.6% 0.4% 1.1% Write-off Ratio % 1.7% 1.3% 0.5% 0.3% 2. Loan Loss Rate % 0.7% 1.1% 0.4% 0.2% 1.2% Risk Coverage 175.5% 257.7% 99.9% % 99.5% %

18 18 Benchmarking Microfinance in Eastern Europe and Central Asia 2006 Eastern Europe Central Asia INSTITUTIONAL CHARACTERISTICS Azerbaijan Georgia Kyrgyzstan Tajikistan Low End Broad High End SME Number of MFIs Age Total Assets 2,988,279 3,839,785 11,799,577 1,386,759 1,216,029 6,216,057 21,817,456 14,658,326 Offices Personnel FINANCING STRUCTURE Capital/Asset Ratio 38.8% 42.1% 30.6% 59.4% 84.8% 34.6% 14.4% 25.4% Commercial Funding Liabilities Ratio 9.8% 45.3% 32.6% 33.3% % 30.4% 77.4% Debt/Equity Ratio Deposits to Loans Deposits to Total Assets Gross Loan Portfolio/Total Assets % 86.9% 89.9% 84.2% 87.2% 86.7% 73. OUTREACH INDICATORS Number of Active Borrowers 4,332 4,705 13,359 3,491 2,999 5,144 7,825 3,865 Percent of Women Borrowers 38.3% 52.7% 53.5% 49.2% 70.9% 48.9% 26.6% 36.5% Number of Loans Outstanding 4,332 4,705 13,373 3,716 2,999 5,144 7,825 3,879 Gross Loan Portfolio 2,751,831 3,153,468 8,475,126 1,143,704 1,022,274 4,867,511 19,163,736 9,861,290 Average Loan Balance per Borrower ,264 3,982 4,475 Average Loan Balance per Borrower/GNI per Capita 35.9% 70.3% 188.1% 111.3% 16.7% % 344.7% Average Outstanding Balance ,219 3,982 4,471 Average Outstanding Balance/GNI per Capita 35.9% 66.4% 188.1% 102.2% 16.7% 63.8% 173.1% 344.7% Number of Voluntary Savers Number of Voluntary Savings Accounts Voluntary Savings Average Savings Balance per Saver ,045 2,429 1,310 3,251 Average Savings Account Balance ,045 2,142 1,310 3,251 MACROECONOMIC INDICATORS GNI per Capita 1,240 1, ,090 2,700 2, GDP Growth Rate 26.2% 9.3% % % 6.4% 7.5% Deposit Rate 10.6% 11.4% 5.6% 9.1% 8.3% 5.2% 5.2% 6.8% Inflation Rate 8.3% 8.2% 5.6% 10.1% 9.2% 7.4% 6.6% 8.9% Financial Depth 15.2% 16.6% 21.3% 7.6% 21.2% 33.4% 33.4% 21.3% OVERALL FINANCIAL PERFORMANCE Return on Assets 4.1% -0.8% 2.3% % 1.8% 0.5% 1.1% Return on Equity 6.7% -1.2% 7.1% 10.3% 9.3% 4.7% 7.5% 6.3% Operational Self-Sufficiency 142.5% 115.6% 136.2% 134.8% 143.2% 124.6% % Financial Self-Sufficiency 121.9% % 117.9% 128.1% 111.8% 102.5% 111.2% REVENUES Financial Revenue Ratio 35.4% 32.6% 39.8% 38.3% % 21.2% 20.5% Profit Margin 17.9% 0.8% 16.2% 15.2% 21.7% 10.6% 2.5% 10.1% Yield on Gross Portfolio (nominal) 37.5% % 44.1% 40.3% 30.7% 24.7% 22.9% Yield on Gross Portfolio (real) % 30.6% 30.9% 31.1% % 13.4% EXPENSES Total Expense Ratio 30.2% 32.7% 31.5% 31.6% 28.1% 26.9% 21.1% 21.8% Financial Expense Ratio 9.9% 9.8% 5.6% 8.9% 9.3% 6.8% 7.6% 8. Loan Loss Provision Expense Ratio % 2.1% 1.8% 0.4% 1.4% 0.9% 1.2% Operating Expense Ratio 18.1% 20.2% 19.1% 20.9% 18.9% 16.3% 11.1% 9.4% Personnel Expense Ratio 10.8% 10.8% 10.9% 12.2% 11.5% 8.7% 4.9% 5. Administrative Expense Ratio 7.2% 8.9% 8.2% 8.3% 6.1% 6.8% 5.5% 4.8% Adjustment Expense Ratio 5.5% 4.6% 1.3% 4.5% % 1.6% 2.2% EFFICIENCY Operating Expense/Loan Portfolio 20.7% 25.7% 16.9% % 18.8% 13.9% 12.2% Personnel Expense/Loan Portfolio 12.3% % 13.6% 10.3% 6.4% 6.6% Average Salary/GNI per Capita 567.2% 469.2% % 831.5% 279.2% 529.1% 576.2% 737.1% Cost per Borrower Cost per Loan PRODUCTIVITY Borrowers per Staff Member Loans per Staff Member Borrowers per Loan Officer Loans per Loan Officer Voluntary Savers per Staff Member Savings Accounts per Staff Member Personnel Allocation Ratio 40.5% 38.6% 39.8% 48.1% 59.2% 51.3% 43.9% 37. RISK AND LIQUIDITY Portfolio at Risk > 30 Days 0.5% 0.9% 3.5% 0.5% 0.7% 1.2% 1.2% 1.4% Portfolio at Risk > 90 Days 0.3% 0.5% 2.6% 0.4% 0.2% 0.6% 0.6% 0.6% Write-off Ratio 0.4% 0.8% 0.4% 0.3% 0.5% 0.6% 0.8% 0.4% Loan Loss Rate 0.3% 0.6% 0.1% 0.3% 0.5% 0.5% 0.4% 0.2% Risk Coverage 131.5% 169.7% 121.5% 319.1% 22.6% 116.7% 203.6% 148.

19 Benchmarking Microfinance in Eastern Europe and Central Asia Eastern Europe Central Asia INSTITUTIONAL CHARACTERISTICS ECA FI ECA non FI ECA Small FSS ECA Small Non FSS ECA Medium FSS ECA Medium Non FSS ECA Large FSS ECA Large Non FSS Number of MFIs Age Total Assets 45,381,840 4,398,514 1,225,498 1,433,409 4,366,391 3,865,505 30,413,108 45,441,852 Offices Personnel FINANCING STRUCTURE Capital/Asset Ratio 11.4% 46.7% 51.7% 66.5% 47.9% 35.5% 25.3% 20.9% Commercial Funding Liabilities Ratio 100.2% 31.7% 12.9% 23.4% 31.7% 44.2% 81.9% 51.4% Debt/Equity Ratio Deposits to Loans Deposits to Total Assets 48.2% Gross Loan Portfolio/Total Assets 77.8% 87.8% 89.2% 87.1% 88.3% 84.1% 80.4% 75.5% OUTREACH INDICATORS Number of Active Borrowers 8,888 4,319 1, ,887 2,136 19,621 14,007 Percent of Women Borrowers 51.1% 46.5% 61.7% 52.8% 43.7% 44.7% 41.6% 36.4% Number of Loans Outstanding 8,942 4,319 1, ,887 2,136 20,896 14,602 Gross Loan Portfolio 31,127,334 3,968, ,689 1,283,673 4,044,388 3,663,223 26,365,622 30,903,380 Average Loan Balance per Borrower 2,964 1, , ,488 2,074 2,832 Average Loan Balance per Borrower/GNI per Capita 116.7% % 77.6% 53.3% 79.3% 99.1% 132.6% Average Outstanding Balance 2,960 1, , ,481 2,074 2,825 Average Outstanding Balance/GNI per Capita 116.7% % 77.6% 53.3% 79.3% 96.1% 132.6% Number of Voluntary Savers 2, Number of Voluntary Savings Accounts 2, Voluntary Savings 8,980, ,143 Average Savings Balance per Saver 2, ,336 7,040 n/a 3,686 1, Average Savings Account Balance n/a MACROECONOMIC INDICATORS GNI per Capita 2,830 1,474 1,240 3,955 1,520 2,830 2,570 2,700 GDP Growth Rate 6.4% % 6.4% % 5.5% 5.3% Deposit Rate 5.1% 5.6% 9.1% % 5.6% 5.2% 5.2% Inflation Rate 9.1% 7.4% 8.6% 9.7% 8.3% 8.3% 7.4% 7.8% Financial Depth 33.4% 21.3% 15.2% 33.4% 24.3% 33.4% 33.4% 42.9% OVERALL FINANCIAL PERFORMANCE Return on Assets 0.6% 2.6% % 2.8% -4.7% % Return on Equity 3.1% 6.2% 11.8% -9.2% 7.9% -7.8% 12.6% -4. Operational Self-Sufficiency 111.1% 133.6% 145.2% 100.2% 129.5% 102.3% 136.7% 106.2% Financial Self-Sufficiency 106.3% 116.1% 134.7% 88.1% 114.3% 85.2% 120.1% 93. REVENUES Financial Revenue Ratio 19.8% 27.7% % 35.3% 22.1% 21.5% 20.1% Profit Margin 5.9% 13.9% 25.7% -13.5% 12.5% -17.3% 16.7% -7.6% Yield on Gross Portfolio (nominal) 22.2% 30.7% 41.8% 31.1% 36.6% 25.1% 24.3% 25.6% Yield on Gross Portfolio (real) 15.4% 22.9% 34.9% 19.3% 26.6% 16.6% 17.4% 14.6% EXPENSES Total Expense Ratio 19.8% 26.8% 26.6% 33.4% % 17.9% 22.1% Financial Expense Ratio 8.2% % 10.9% 9.2% % 7.1% Loan Loss Provision Expense Ratio 0.9% 1.4% 0.6% % 0.8% 1.3% 1.3% Operating Expense Ratio 9.1% 16.6% 19.6% 18.9% 16.6% 18.2% 9.6% 10.7% Personnel Expense Ratio 4.2% 9.5% 12.1% 10.1% 8.9% 9.5% % Administrative Expense Ratio 4.7% % % 4.3% 5.6% Adjustment Expense Ratio % 3.6% 3.2% 2.5% 4.3% 1.3% 2.5% EFFICIENCY Operating Expense/Loan Portfolio 11.9% 20.1% 22.8% % 20.9% 12.5% 13.8% Personnel Expense/Loan Portfolio 5.8% 11.3% 13.4% 12.7% 10.3% % 6.8% Average Salary/GNI per Capita 504.8% 576.2% 429.5% % 500.1% 613.9% 556.8% Cost per Borrower Cost per Loan PRODUCTIVITY Borrowers per Staff Member Loans per Staff Member Borrowers per Loan Officer Loans per Loan Officer Voluntary Savers per Staff Member Savings Accounts per Staff Member Personnel Allocation Ratio 41.4% % 39.8% 53.1% 52.2% 46.3% 41.5% RISK AND LIQUIDITY Portfolio at Risk > 30 Days 1.2% 1.2% 0.8% 1.9% 1.6% 1.6% 1.2% 1.2% Portfolio at Risk > 90 Days 0.6% 0.6% 0.6% 0.9% 0.7% 0.4% 0.6% 0.7% Write-off Ratio 0.4% 0.6% 0.2% 1.2% 0.5% 0.6% 0.6% 1.1% Loan Loss Rate 0.3% 0.5% 0.1% 0.9% 0.5% 0.6% 0.3% 0.7% Risk Coverage 160.9% 108.7% % 1.1% 0.5% 1.9% 2.

20 MIX 2006 Benchmarks This publication is part of a series of regional industry benchmarking reports produced by the Microfinance Information exchange: Benchmarking African Microfinance Benchmarking Asian Microfinance Benchmarking Arab Microfinance Benchmarking Latin American Microfinance Benchmarking Microfinance in Eastern Europe and Central Asia Benchmarking Microfinance in UEMOA (West African Monetary Union) The regional reports are based on 2006 benchmark data, collected from 704 microfinance institutions located in Sub-Saharan Africa, Asia, Eastern Europe and Central Asia, Latin America and the Caribbean, and the Middle East and North Africa. The series represents the most methodologically consistent in-depth reports on the performance of microfinance providers produced to date. To view the other regional reports and all MIX publications, go to MIX is the leading provider of business information and data services for the microfinance industry. Dedicated to strengthening the microfinance sector by promoting transparency, MIX provides detailed performance and financial information on microfinance institutions, investors, networks and service providers associated with the industry. MIX does this through a variety of publicly available platforms, including MIX Market ( and the MicroBanking Bulletin. MIX is a non-profit company founded by CGAP (the Consultative Group to Assist the Poor) and others, and sponsored by CGAP, the Citi Foundation, Deutsche Bank Americas Foundation, Omidyar Network, Open Society Institute & the Soros Economic Development Fund, Rockdale Foundation and others. Microfinance Information exchange 1901 Pennsylvania Avenue NW, Suite 307 Washington DC 20006, USA Tel: +1 (202) , Fax: +1 (202) info@themix.org MIX would like to thank all our partners, without whom this report would not be possible. Benchmarking Eastern Europe and Central Asia Microfinance 2006 was produced with help from: