Sector overviews

Abstract

A. Background and Trends 1. Demand for microfinance. Poverty remains a major concern despite a substantial reduction in global extreme poverty (set at $1.90 per day) from 36% in 1990 to 9% in 2017. Based on the $3.20 per day poverty line of lower middle-income countries, 24% or 1.8 billion of the global population lived below this threshold as of 2017 and are considered poor. 1 Globally, South Asia has the second highest incidence of poverty, at 52.4% (nearly 905 million people living below $3.20 per day) in 2014. 2 2. Before the pandemic, developing Asia was steadily reducing the poverty rate. If the coronavirus disease (COVID-19) pandemic had not happened, 732 million people were projected to be living on less than $3.20 per day across developing Asia 3 in 2020. 4 With the COVID-19 pandemic prompting various levels of containment measures worldwide and adversely impacting economies to a massive extent, the number of poor is estimated to increase by an additional 162 million throughout the region. 5 3. Financial inclusion (generally defined as making financial products and services accessible and affordable to all individuals in a responsible and sustainable manner) is a key enabler in reducing poverty. However, according to the 2017 Global Findex Database, about 1.7 billion adults in the world remain unbanked, with no account at a financial services provider. 6 In 2017, about 44% of adults in developing economies 7 reported borrowing money in the past year. About 29% relied on informal sources (e.g., family and friends), while fewer (15%) borrowed from financial institutions or via a credit card. Only 8% of adults in South Asia borrowed from formal sources; Pakistan (3%), India (8%), and Bangladesh (9%) are among the countries where people least borrowed from formal channels. Accessing financial services from formal channels was even lower among women in South Asia, at 6% in 2017. 8 4. Microfinance market snapshot. Microfinance institutions (MFIs) have steadily increased their lending to an estimated worldwide gross loan portfolio of $124.1 billion as of 2018. Almost 140 million borrowers benefited from the services of MFIs in 2018-primarily women (80%), with 65% from rural areas-proportions that have remained stable since 2010. South Asia, with an estimated gross loan portfolio of $36.8 billion, dominates global microfinance in terms of client outreach, as it has the largest number of end borrowers (85.6 million in 2018, 89% women) and is growing faster than other regions (+13.8% from 2017 to 2018). It also has the top two markets in terms of the number of borrowers-India and Bangladesh. 9 Despite steady growth in the loan 1 World Bank. 2020. Poverty and Shared Prosperity 2020: Reversals of Fortune. Washington, DC. 2 Footnote 1, p. 63. The World Bank report has no poverty estimates for South Asia after 2014 because of the absence of population coverage. 3 Analysis for developing Asia was based on information from 35 Asian Development Bank (ADB) developing member countries for which data needed for poverty and inequality calculations were available.