Lessons from South Asian MFIs moving up market

01.12.2007
Some South Asian microfinance institutions are moving beyond traditional microcredit lending into the small enterprise segment. This article describes four factors pulling MFIs into the new segment: increasing competition for more traditional microfinance clients, market opportunities, the expectation of improved financial performance and the expectation of positive development impact. The article examines lessons from MFIs in Afghanistan, Pakistan, India and Bangladesh, arguing that effective differentiation between the microfinance and small enterprise market, combined with segmentation within the small enterprise market, are central to success. There is no one-size-fits-all lending approach; rather there is a continuum of combinations that need to be refined to align efficiency, client preferences and credit quality. A critical decision at the outset is whether MFIs should set up separate lending departments for small enterprise lending. As a relatively new development for South Asia, the developmental impact and financial performance of small enterprise lending merit more attention and critical analysis.