MIMOSA Microfinance Index of Market Outreach and Saturation: Part 1 - Total Credit Market Capacity

This paper analyzes credit market capacity using the Global Findex dataset, a survey on the use of financial services in 148 countries. It is the first in a series to be published by Planet Rating, and will gradually constitute the Microfinance Index for Market Outreach and Saturation (MIMOSA).The paper predicts market potential for formal credit through a formula based on the Human Development Index (HDI), and use of formal savings and semi-formal loans. It compares this predicted market potential to the current use of formal loans to calculate the penetration rate. It rates penetration on a 5-point market score that highlights risks and provides guidance for policy objectives. For markets:

• Score of 1 implies significant under-development of formal credit use, need to develop market infrastructure, and fund development of new and existing MFIs;
• Score 2 or 3 implies a normal level of development in the use of formal credit, suggesting that microfinance practitioners should focus on improving service quality while pursuing sustainable growth.
• Score of 4 or 5 shows that countries are either approaching their credit capacity threshold or have crossed it, requiring an emphasis on preventing over-indebtedness.