The last decade saw an incredible expansion of the microfinance industry, reaching 190.3 million borrowers in 2009. In 2007, in the heat of this expansion, Forbes Magazine named Bangladesh’s ASA as the top microfinance institution worldwide. In his book The Pledge, Stuart Rutherford describes ASA’s moves to maintain successful development outreach and profitability simultaneously. At the time, ASA was one of the few institutions with a clear claim to truly achieving the “win-win” promise of microfinance.
We just received ASA’s 2010 Annual Report. The report marks two interesting trends since 2007. First, the number of loans and members served are declining. But, second, the total loan disbursement and average loan size are increasing.
Putting the two trends together shows ASA’s move to lending larger amounts of money to fewer people. The move lines up with research showing that profit-driven microfinance banks, as a group, make loans that on average are about four times larger than loans from NGOs. Since poorer customers generally demand smaller loans, average loan size is a rough proxy for the poverty level of customers. So this could indicate that ASA could be shifting its priority away from serving poorer customers in the interest of profitability. Given ASA’s reputation for serving the poor, though, this would be a notable shift.
But that could be wrong. Alternatively, ASA may have decided to pull in the reins and be more careful about lending only to reliable customers. The crisis in Andhra Pradesh showed us that MFIs find that their customers often want more credit than a single MFI is able to give, and that customers therefore borrow from multiple lenders at the risk of overextending themselves. Bangladesh has also been subject to massive “multiple lending” in the past decade.
ASA’s annual report numbers could signal that ASA is acting more conservatively to avoid the problem of risky borrowers defaulting on their loans. ASA’s percentage of Portfolio at Risk (PAR) has gone down by about half in the last two years (see table above), a likely outcome from this sort of planned operational readjustment.
Or, did they just decide to write off a lot of bad loans to pull themselves out of a slump and restart from there?
Those are the questions. Answers to come.