Posts Tagged ‘Price Curve’

by Jessica Haeussler

In my last post, I examined data for Russia, Mexico and India, three large microfinance markets in different regions. We looked at the correlation between portfolio yield and loan size and discussed interest rates and profitability for MFIs with different focuses in terms of rural/urban populations and share of female clients. Comparing these markets, we observed a much broader range of yields in the Russian and Mexican market as compared to the Indian market.

How about operating expenses? It may be interesting to note that operating expenses are particularly high in Mexico, given that the cost of transportation, communication as well as salaries are higher than in many other countries and among the highest in Latin America. This is reflected in the median operating expense ratio reported by the MIX, which is 61.45% in Mexico, 16.21% in Russia and 11.12% in India. Looking at the median for only those MFIs with an ROA > 0 (sustainable), the median for the Mexican market is 48%, while it is 15% for Russia and 11% for India. From these numbers we can conclude that the median operating expense ratio for Mexican MFIs in considerably higher than for Indian MFIs, which could explain the higher market curve (yield) for Mexico. We might expect Mexican MFIs to be less profitable due to their higher operating costs, yet the analysis suggests pretty high ROEs. Could this be the result of an opaque pricing environment? What other factors could explain these findings? Will enhanced pricing transparency have an impact on this, as it promotes healthy consumer choice and competition among institutions?

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by Jessica Haeussler

We have looked at the correlation between loan size and portfolio yield on several occasions and noticed that the shape of the curve closely follows that of loan size and operating expenses. For several markets, these country graphs suggest that a number of MFIs are making yields above the market average in a given loan-size category. Are these MFIs also more profitable than MFIs with yields closer to the market curve? We would expect operating expenses to be higher in rural areas. Do MFIs serving rural areas have higher yields than those operating in urban areas so as to cover these higher cost? Are they less profitable in terms of ROE? And are MFIs less profitable in those markets with relatively higher operating expenses as compared to other markets? Let’s look at three relatively large microfinance sectors in different regions: Russia, Mexico and India.

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