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Microfinance in Latin America and the Caribbean (LAC) has maintained a steady growth pace over the past years, both in terms of scale and outreach. At the same time microfinance institutions have kept their commitment to serve the lowest income sectors. Overall, operational efficiency is increasing and expenses are going down. Portfolio delinquency greater than 30 days seems to be ever decreasing. On the other hand, nominal portfolio yields fell dramatically over the past year to their lowest levels yet, resulting in reduced income for microfinance institutions.

A closer look at the LAC region reveals that results varied significantly for individual countries and institutional types. Despite falling portfolio delinquency, microfinance institutions loan write-offs increased. Some new industry developments may be the cause: competition has become acute in recent years, particularly in some countries. The emergence of large, commercial players in the region is changing the industry landscape, putting competitive pressure especially on some non-government organizations and cooperatives.

Microfinance institutions need to closely examine the competitive situations in their individual markets. The rapid growth and high portfolio yields that have characterized the LAC region for the past decade are under pressure as competition increases. With the growing supply of microfinance products, microfinance institutions will have less power to set interest rates, requiring continuing innovation and improvements in efficiency to stay on top. While these trends represent a coming challenge for institutions, consumers will benefit from lower prices, increased access and better service.

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