Microfinance Focus, January 4, 2012: Social investment company responsAbility has recently released its Microfinance Market Outlook 2012 predicting a real growth rate of 15-20% for the global microfinance sector. It forecasts a strong growth for South and East Asian microfinance markets and the two regions are predicted to grow at 20-30%.

After a year of rapid expansion, microfinance loan portfolio growth is likely to moderate in 2012, the report claims. Profitability, which has reached pre-crisis highs, is also set to moderate to its long term average.

For India outside Andhra Pradesh, responsAbility expects new growth, but at lower rates than before the crisis. Rigid rules like the interest rate cap that favour large urban microfinance institutions and disfavour smaller operations in rural areas, could drive a wave of consolidation in the sector.

Regions with large share of population working in Europe and the US, namely Eastern Europe and Central America are expected to continue to see the growth of their microfinance industries impaired.

Additionally, scarce funding due to the European Banking crisis may particularly affect microfinance in Eastern Europe. The region is expected to grow at a 0-10%.

Portfolio quality has seen a second year of improvement in 2011. The share of non-performing loans shrank from 5% to 3% globally. PAR 30 has stabilized at a lower level, and the share of refinanced loans has decreased substantially from 2.3% at the end of 2010 to 0.6% one year later.

The share of loans written off has halved over the same period. This indicates that the effects of recession on microfinance have been successfully absorbed.

Local funding will become more important over the next 3 years compared to international funding and half of all the experts reached, consider savings as the most preferred source of funding.

This Market Outlook is based on a comprehensive survey of 27 industry experts representing all major microfinance markets, as well as on responsAbility’s extensive market data.