Lack of Access or Crowded Markets? Towards a Better Understanding of Microfinance Market Penetration

This paper proposes a new set of indicators to measure market penetration in microfinance markets. It presents a unique dataset of microfinance market penetration rates for loans and deposits for a large set of countries and implements refined measurements for a smaller selection of countries. The paper states that low global market penetration has served as an argument to invest in microfinance often without sufficient differentiation between countries. It stresses the need for precise measures to differentiate between those markets that are deeply penetrated and those with significant potential for expansion. Conclusions include:

• Investors, funders, owners, and managers of financial institutions serving the microfinance market segment need to be aware of limitations to grow in many markets;
• Persistently lower than average rates in many countries show that continuing to offer the same products in the same markets is not useful;
• Microfinance market penetration rate varies depending on the purpose for which it is used;
• Refined measurements differ substantially from general rates;
• Need to continue collecting better data to complete refined measurements.