The objective of this CGAP survey is to better understand the current and potential role of microfinance institutions (MFIs) with regards to serving and financing small enterprises.

1. Role of MFIs in Serving Micro
and Small Enterprises
Survey Results
May 2012

2. Publication
The survey results in this presentation are published in CGAP Focus Note 81: “Financing Small
Enterprises: What Role for Microfinance Institutions?” by Jasmina Glisovic and Meritxell Martinez
(July 2012).
For more information please visit: www.cgap.org/publications
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3. Outline
1 Research objective, sample, and methodology
▫ Objective
▫ Regional distribution by institutional type
2 Understanding the difference between micro and small enterprises
▫ Informality levels of micro and small enterprises
▫ Women-led micro and small enterprises
▫ Growth from micro to small enterprises
3 Focus on serving small enterprises
▫ MFIs strategies: Why serving small enterprises?
▫ Growth trend of small enterprise portfolio
▫ Growth trend by region
▫ MFIs definition of small enterprises
▫ MFIs product offering
▫ Market segmentation of small enterprises
▫ Competition for small enterprise clients
▫ MFIs systems to serve small enterprises (staff/department/monitoring portfolio)
▫ Main challenges faced by MFIs
▫ Key success factors
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4. 1 RESEARCH OBJECTIVE, SAMPLE
AND METHODOLOGY
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5. 1 Research objective
To better understand the current and potential
role of Microfinance Institutions (MFIs) with
regard to serving small enterprises
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6. 1 Sample and research methodology
• Industry survey with over 350 MFIs conducted in Nov-Dec 2011 in 3
languages (French, Spanish, English)
• Quantitative and qualitative analysis of responses
• MFIs from 69 countries
Sample distribution by region Institutional type Commercial bank
5%
Rural bank
3% Credit
union/Financial
cooperative/SACCO
EAP 12%
SSA 11%
21%
ECA Non-bank financial
24% institution
31% Microfinance bank
SA 16%
13%
MENA
10%
LAC
NGO/Foundation
21%
33%
NOTE: ECA: Eastern Europe and Central Asia; EAP: East Asia and Pacific; LAC: Latin America and the
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Caribbean; MENA: Middle East and North Africa; SA: South Asia; SSA: Sub-Saharan Africa.

7. Diverse regional distribution by institutional
1
type
35
Commercial Bank
30
Credit union/Coop
MF Bank
25
NGO/Foundation
NBFIs
20
Rural bank
15
10
5
0
EAP ECA LAC MENA SA SSA
NOTE: ECA: Eastern Europe and Central Asia; EAP: East Asia and Pacific; LAC: Latin America and the
Caribbean; MENA: Middle East and North Africa; SA: South Asia; SSA: Sub-Saharan Africa. 7

8. 2 UNDERSTANDING THE
DIFFERENCES BETWEEN MICRO AND
SMALL ENTERPRISES
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9. 2 Informality levels of micro and small
enterprises
MICRO SMALL
SSA 82% ECA 24%
SA 85% SSA 50%
MENA 85% MENA 58%
LAC 88% LAC 44%
ECA 57% EAP 60%
EAP 88% SA 81%
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Up to 25% informal Between 25-50% More than 50% Up to 25% Between 25-50% More than 50%
informal
informal informal informal informal informal
N= 206 (*) MFIs estimates N= 189
While small enterprises are more formal than micro, informality is
widespread in all regions with the exception of ECA. 9

10. 2 Women-led micro and small enterprises
MICRO SMALL
EAP EAP
SA SA
SSA SSA
WOMEN WOMEN
MEN MEN
LAC LAC
ECA ECA
MENA MENA
0% 20% 40% 60% 80% 100%
0% 20% 40% 60% 80% 100%
N= 209 N= 192
(*) MFIs estimates
Compared to micro enterprises, small enterprises are less often led by
women, specially in MENA and ECA. 10
N=

11. 2 Growth from micro to small enterprises
% of enterprises that grow from micro to small
40%
28%
18%
7% 8%
Less than 10% 10-20% 20-50% Over 50% Don't know
40% of MFIs said that less than 10% of their microenterprise clients grow to
become small.
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N= 213

12. 3 SERVING SMALL ENTERPRISES:
INSIGHTS FROM MFIs
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13. For most MFIs, serving small enterprises is
3
part of their business strategy
Is serving small enterprises part of your strategy?
Yes No Not yet
16%
6%
78%
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N= 186

14. Growth trend of MFIs’ small enterprise
3
portfolio
69%
21%
9%
Increasing Stable Decreasing
N=193 14

15. Growth trend of MFIs’ small enterprise
3
portfolio by region
79% 79% 78% Increasing
68% Stable
Decreasing
55%
50%
32%
23% 23%
18% 16% 16% 18%
13% 12%
8% 9%
4%
EAP LAC SSA MENA SA ECA
N=193
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16. 3 Why do MFIs serve small enterprises?
Business growth opportunities 85%
69%
Following micro clients over time Main reasons
to serve small
enterprises
Increased competitions for micro clients 37%
Higher profitability 35%
Disbursement targets/pressure 21%
Incentives from funders 17%
Incentives from governments 15%
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N= 150 Multiple answers

17. 3 MFIs typically characterize small enterprises by
loan size
Criteria used to define small
enterprises (% of MFIs)
54%
33%
13%
Loan size Number of Annual sales
employees
While “loan size” and “annual sales” differ by country/institution, “number
of employees” typically ranges from 5 to 30 workers, outside household.
N = 114

18. 3 Most MFIs offer small business loans
Types of services offered
85%
71%
63%
49%
38% 37%
33%
25%
21%
17%
croloan individual business loan
Small Group loan Consumer loan Business
BDS Deposit Insurance Payments Remmittances Overdraft
Development
Services
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N= 235 Multiple answers

19. 3 Market segmentation of small enterprises
How do MFIs sub-segment the small enterprise market?
5%
Economic sector
(e.g., agriculture, industry, s
17% 29% ervices)
Geographic area
(rural, urban)
Business profitability of
enterprises
Revenue to the MFI
22%
Other (e.g., gender)
27%
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N= 159 Multiple answers

20. 3 Intense competition for small enterprise clients
Level of competition among financial service
providers serving small enterprises (% of MFI)
Not
intense
16%
Very
intense
44%
Somewhat
intense
40%
20
N= 197

21. 3 MFI systems to serve small enterprises
Do you have a separate Separate risk methodology by
methodology for small enterprise institutional type
risk assessment? (% of MFIs)
Commercial banks 72%
Credit unions 71%
Microfinance bank 60%
Yes
Yes
49% No NGO/Foundation 49% No
51%
NBFIs 43%
Rural bank 24%
0% 20% 40% 60% 80% 100%
N=190
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22. 3
44% of MFIs do not monitor micro and small
enterprise portfolio separately
Do you monitor micro and small enterprise portfolio
separately?
44%
Yes
No
56%
N=225

23. Most MFIs do not have dedicated
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staff/department to serve small enterprises
Do you have dedicated staff for Do you have a dedicated small
small enterprise clients? enterprise department?
61% 70% 30%
39%
Yes Yes
No No
N=201 N=202
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24. 3 Main challenges faced by MFIs
Top three internal, external and enterprise-level challenges MFIs
face in serving small enterprises:
INTERNAL EXTERNAL ENTERPRISE-LEVEL
• Lack of appropriate risk • High cost of operations • Lack of financial statements
assessment methodologies
• Lack of demand for MFI • Business are not registered
• Management perceives segment products by enterprises
as too risky • Lack of collateral to secure the
• Restrictive regulations loan
• Inadequate MFI products (e.g., lending regulations, tax
regime) • No clear separation between
• Lack of MFI staff capacity to household and business accounts
analyze the business (e.g., loan • Lack of credit registry (i.e., credit
officers) bureau)
• Lack of internal processes (i.e. • Judicial system (i.e., court
MIS systems) system)
• High cost of operations • High competition (e.g., from
banks, other providers)
• Lack of basic infrastructure in
the country (e.g., roads and
electricity)
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25. 3 Main challenges: What MFIs say…
“Financial statements of small business are often not actual.” NBFI Manager, Armenia
“The main challenge is the presence of competitors including government institutions.”
NGO/MFI Chairman of Board and CEO, Iraq
“In most cases we are not able to serve small businesses as we cannot provide all services
they need. Even in the case of loans, since small business need larger loans with longer terms”
NBFI Credit Manager, Bosnia
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26. 3 Key success factors identified by MFIs
 Client-focused approach
 Commitment from top management and dedicated staff
 Strong risk management
 Flexible products and delivery
Key success factors: What MFIs say…
“KYC approach is not enough, to successfully serve small enterprises you need to have a
BWYC (Be With Your Clients)” NGO/MFI Manager, the Philippines
“Deep insights and strong relationship with the client” NGO/MFI Executive
Director, Dominican Republic
“Having separate, dedicated units for serving micro and small enterprises” Commercial
Bank Manager, Kenya
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27. We welcome your comments, questions and
examples.
CGAP contacts:
▫ Jasmina Glisovic jglisovicmeziere@worldbank.org
▫ Meritxell Martinez mmartinez1@worldbank.org
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28. Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org