Finance

Micro and SME finance market outlook

10–15% growth for global micro and SME finance markets

Global micro and SME finance markets expected to grow by 10–15%. Asia Pacific region remains principal driver. And SME financing in developing countries is booming.

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Source
responsAbility survey

‘Micro and SME Finance Market Outlook 2017’ combines the views of experts from major markets with key macroeconomic indicators and comprehensive data from responsAbility’s business activities.

Key findings of the Market Outlook 2017:

  • 90% of experts anticipate share of SME financing in their markets to increase over next 5 years – 1 in 3 expect increase of more than 20%,
  • Significant global differences – highest growth rate (25-30%) expected in Asia Pacific – lowest (5-10%) in Sub-Saharan Africa and Latin America,
  • 65% of experts expect to see a consolidation of financial institutions in their markets,
  • 50% of those surveyed believe interest rates charged on loans in their markets will decrease in 2017.
Micro SME Finance Market Outlook 2017 DE

Read ‘Micro and SME Finance Market Outlook 2017’ in full

Read ‘Micro and SME Finance Market Outlook 2017’ in full

Alternative investments

Microfinance has established itself as an alternative investment theme. Forecasts regarding the future development of the investment universe attract a high level of interest.

With USD 3.2 billion of assets under management and a network of 550 financial institutions in 96 countries, responsAbility Investments AG is one of the world’s largest asset managers that facilitates microfinance investments.

As such, the responsAbility Market Outlook is one of the most-read publications on microfinance.

2017 Market Outlook expanded to include SME banks

For the 2017 edition, the universe covered in the analysis was expanded to include SME banks for the first time.

Rochus Mommartz, CEO of responsAbility, explained. “This broader focus is based on a trend in our investment markets.

“Thanks to the growth and professionalization of their services, microfinance providers are expanding their offering and increasingly serving SMEs.”

The development of the MSME Investment Sector

Expansion of the financial sector is playing a key role in economic development, driving private-sector growth while promoting a culture of saving and investment.

“Development investment in the financial sector has evolved from a niche, philanthropy-driven segment to a mainstream investment topic.”

Philip Rauh, Head Sales and Business Development, responsAbility Investments AG

As the microfinance market matures, many small financial institutions are growing in size and widening their product offering and becoming Micro, Small and Medium Enterprises (“MSME”) banks.

MSME finance – key figures

  • 2.3 billion people are unbanked
  • SMEs account for 90 % of the total number of formal firms worldwide
  • SMEs contribute only 15.6 % of GDP in low-income countries
  • Finance gap of USD 2.1–2.6 trillion for MSMEs
  • 200 million formal and informal MSMEs in developing countries thought to be unserved or underserved

The growth of the MSME market, reflected by the increase in assets under management, signals rising interest from investors aiming to access the real economy while contributing to growth and prosperity in the developing world.

This marks not only a major shift in the range of products offered to investors, but also a significant change in the conventional wisdom relating to investor appetites.

As a result, investors can play a key and unprecedented role in financial-sector development in emerging markets.

The imapct of macroeconomic factors – our experts' view

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Source
responsAbility survey

What trend do you expect in terms of consolidation in 2017?

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Source
responsAbility survey

Further consolidation in 2017

One of the most striking results from the survey surrounded the theme of consolidation.

65% of our experts expect moderate or strong sector consolidation next year, as smaller institutions merge, are bought or close. However, the trend can vary according to the region.

In Asia, Mongolia’s market is dominated by less than ten institutions, making further consolidation unlikely.

In China, a combination of the large number of small Microcredit Corporations (“MCCs”), slower economic growth and strong government pressure to reform or merge is expected to see a considerable drop in the number of institutions.

In Latin America and Eastern Europe and Central Asia (“EECA”), those interviewed consistently expected consolidation in their markets.

The vast majority of those merging or closing are small institutions that would otherwise struggle to remain financially viable.

Portfolio quality trends diverge

60% of the experts interviewed thought that portfolio quality would stabilize or strengthen in 2017, albeit with only 14 % expecting an actual improvement.

However, the breakdown for portfolio quality forecasts varied considerably by region, and even within region.

For those that expect a deterioration, the drivers varied considerably: the general state of the economy, currency volatility and saturation in certain areas were all cited. Several interviewees also pointed to climate-related factors.

Interest rates to fall

On the other hand, predictions for the direction of endconsumer prices, or the interest rates paid by the clients of MSME financial institutions, were much more homogenous.

86% of our experts believe that interest rates paid by clients will remain the same or decline in 2017, with 51% expecting a decline.

Do you see any changes in end-consumer prices (interest rates)?

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Source
responsAbility survey

“Rates will decline due to increased competition, and as MFIs become small banks the costs will increase initially before resulting in operational savings.”

Venky Natarajan, Lok Advisory Services, India

Urgent need for SME financing

Access to financing was cited as the biggest obstacle to growth for SMEs. This response mirrors World Bank surveys that found similar results across most developing countries.

“The issue of unemployment in Tunisia can only be solved by SMEs.”

Fetid Mestiri, CEO Tunisie Leasing, Tunisia

‘Micro and SME Finance Market Outlook 2017’ shows that in some markets even those SMEs that are able to access finance struggle to meet high refinancing costs.

Experts highlight how SMEs are also hampered by collateral requirements and issues surrounding bureaucracy.

What types of funding will play a significantly more important role in the future?

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Source
responsAbility survey
Micro SME Finance Market Outlook 2017 DE

Read the full 38-page report on global developments in the microfinance industry and what the experts forecast for the next 12-14 months.

Read the full 38-page report on global developments in the microfinance industry and what the experts forecast for the next 12-14 months.