1. Microfinance in Eastern Europe and
Central Asia (ECA)
Analysis and Opportunities
7 May 2010
Chicago Microfinance
Conference
Burcu Guvenek Arasli MSc.
International Development and
Microfinance Expert

2. Presentation Outline
 Microfinance in The ECA Region
General Overview
 Current State of Microfinance in ECA
 Microfinance Providers in The ECA
 General Trends in Micro Credit and Deposit Services
2006-2008
 Consumer Lending ; A Microfinance Dilemma
 Policy Environment in ECA: Key Issues
and Trends
 Funding for ECA MFI’s
 Financial Performance of ECA MFIs
 Effects of the Crisis on Microfinance in the ECA Region
 An Untapped Market in the Region; Turkey
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3. Microfinance in The ECA Region
General Overview
 ECA is a latecomer to Microfinance/Early 1990s.
 Differences from other regions
 Triggered by unemployment need for self
employment
 Credit unions and microfinance bank domination
 Loan sizes are higher/target client is relatively better
off
 Self-sustainability achieved by higher portion of
MFIs
 Highest level of per capita private sector investment
accounting for 46 percent of total private investment
in globally
3  Problems; enabling environment for MFIs, inclusive

4. Current State of Microfinance in ECA
 Despite proliferation in the number of microfinance
providers in ECA in 2008 growth in both microcredit
and deposit services slowed down in 2008.
 Credit unions remain the most numerous players in
the market, and together with banks provide all the
deposit services in ECA.
 Microfinance banks in the Balkans and CEE were
some of the first to rein in growth as credit and
liquidity risks increased in 2008.
 Specific Market risks:
 Market Structure
 Credit Risk
 Currency Risk
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 Funding Risk

5. Microfinance Providers in The
ECA
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6. General Trends in Micro Credit and
Deposit Services 2006-2008
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7. Consumer Lending in Eastern Europe and
Central Asia
A Microfinance Dilemma
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8. Policy Environment in ECA: Key Issues
and Trends
 Development of branchless banking solutions
for the provision of financial services requires
new regulatory approaches.
 Consumer protection issues are considered
increasingly important by policy makers and
industry stakeholders.
 There is insufficient scale of deposit
mobilization by non-bank MFIs, despite
creation of a specific regulatory “window” in
some countries.
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 Issues have arisen related to transformation
and commercialization of MFIs, specifically

9. Funding for ECA MFI’s
 CEE received the highest portion of donor
and investor funding.
 Debt instruments were mostly used in ECA,
where the microfinance sectors are some of
the most commercially oriented globally.
 Smaller MFIs from Caucasus and Central Asia
have tapped into the international commercial
debt market in recent years, which has also
exposed them to higher funding risks.
 Most loans to MFIs were extended in hard
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currency. Consequently, MFIs slowed down
demand for borrowings from international

10. ECA MFI
Funding
22 percent of total
funding committed to
microfinance in the
ECA globally
90 percent of
funding committed by
donors and investors
i.e. KfW, EBRD, IFC,
WB, and EIB
ECA receives 34
percent of all equity
investments globally
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11. ECA MFI’s Borrowing Maturity
Breakdown
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12. Financial Performance of ECA MFIs
 Higher financial costs and deteriorating
portfolio quality squeezed profit margins in
2008.
 Despite a rise in loan balances, little was
achieved in efficiency gains in 2008.
 Staff and branch growth slowed down in 2008,
in line with lower outreach growth.
 Credit risk increased in every sub-region and
for every charter type in 2008 and was highest
in CEE and Russia.
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13. Expense Structure
Why is it so important for MFIs?
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14. Portfolio Quality
Risk levels were
increasing
across the board
in ECA, but
sectors in CEE
and Russia were
faced with the
highest credit
risk among
peers,
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15. Effects of the Crisis on
Microfinance in the ECA Region
 In 2009 by shifting their focus from growth to portfolio
quality.
 The financial crisis underlined the importance of some
policy measures such as consumer protection,
especially in times when MFIs may be inclined to
increase the cost of loans, engage in aggressive
collection practices, or disburse indexed loans in order
to address their rising costs.
 Still, a positive sign is that in many countries MFIs
performed better than commercial banks in terms of
delinquency levels,
 Compared globally, the ECA microfinance sector is
relatively young, but in less than two decades of
15 operations, it has become integrated with domestic and
international financial markets

16. An Untapped Market in the Region;
Turkey
 Current status of microfinance in Turkey
 Reasons of under development
 Demand/Supply Status
 Recent developments /Increased
Awareness and Investments
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17. Thank You For Your Attention
Q&A Session
Burcu Güvenek Arasli
Burcu.arasli@ttmail.com
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