1. Determining the Size & Risks of the Microfinance Market

2. “Know your market – know your clients”

3. Session Objectives Learn to quantify the size of the microenterprise sector in the target area Learn to assess the risks of the target market

4. Reference Materials Ref 1: NSO, Establishments in the Philippines 2000 Ref 2: Raike Quinones, Microenterprise Sector Study

5. Why Measure the Size of the Microfinance Market? The size of the market determines the potential scale of your bank’s microfinance operations. An estimate of the market size can be used to generate more realistic growth projections.

6. Profile of the ME Sector Microenterprises (MEs) are defined as those having less than 10 workers. Women comprise around 80% of the micro business operators. A majority of the MEs are registered, usually with the local governments. Unregistered MEs are between 14% - 26% of the total population of microenterprises.

7. Profile of the ME Sector A. Size, Employment, and Income Source Microenterprises comprise 91% of the total number of registered establishments in operation in 2000. Numbering 747,740 nationwide, microenterprises: absorb 37% of the workers in the formal sector. provide primary income to at least 30% of the rural work force Provide secondary income to about 20% of rural households A 1998 NSO survey of households in Mindanao reported that 12% of households were engaged in micro business activities. */ National Statistics Office (NSO), “Establishments in the Philippines 2000”

8. Profile of the ME Sector B. Composition of the ME Sector* Majority (52%) are wholesale and retail trade businesses Services sector accounts for 36% Manufacturing activities accounts for 9% * Refer to m2s2 Handouts 1 and 2 for details.

9. Market Size Two Estimation Procedures Comparative Results

10. Estimation Procedure: Based on the Total Number of Households 1.Find the total number of households from the latest census data 2.Assume that the number of households engaged in microenterprises as their primary source of income is 10-20% of the total 3.Estimate the number of households engaged in microenterprises -------------------------------------------------------------------------- Example: 1.Total number of households11,485 2.% engaged in microenterprises10% 3.Size of the Microenterprise Sector = Total # of HHs * 10%

11. Estimation Procedure: Based on the Total Number of Registered Businesses 1.Get the total number of registered business establishments from city/municipal and barangay records 2.Determine the % of registered microenterprises to the total number of registered business establishments 3.Assume that an additional 20% are unregistered ------------------------------------------------------------------------------- 1.Total number of registered business establishments1,285 2.% registered microenterprises75% 3.% unregistered20% 4.Size of the Microenterprise Sector = Total No. of Reg. Businesses * 75% * (1 + 20%)

12. Comparative Results of Two Estimation Procedures # Reg.# MarketTotal # No. of MEs Based On Area# HHsBusinessStallsReg. Bus.# HHs# Reg.Bus. Roxas10,1221,4984021,9001,0121,710 Cauayan18,5361,9276032,5301,8542,277 Alicia11,6361,1555221,6771,1641,509 Sta. Ana8,864147235382886344 Candaba17,291371754461,729401 Guagua19,0732,1956652,8601,9072,574 Pulilan13,1004766501,1261,3101,013 Bocaue15,2421872974841,524436 Arayat19,7655142177311,976658 Capas16,2074532767291,621656 Floridablanca16,8102,4093922,8011,6812,521 Ibaan6,903531150681690613 Bauan14,2021,3563001,6561,4201,490 San Jose9,6999922031,1959701,076

13. Results of Estimation Procedures The results are initial estimates When the result of either estimation procedure shows a very small market potential, consider looking at another area. When there is a large disparity between the results of the two estimation procedures, look at the other characteristics of the area, such as: Are the households generally dependent on wages? Is the area predominantly agricultural? or Are data on the number of registered enterprises incorrect?

14. Assessing Risks from Competition  The bank’s risk from competition can come from: Institutional lenders active in lending to MEs in your target area (such as other banks, cooperatives, NGOs, pawnshops, lending investors) Informal lenders  You will use RMA Tables 5 & 6 to gather information about the competition and the loan and savings products they offer.

15. Assessing Risks Risks from competition Risks to household incomes Risks to the business Other risks

16.  Give particular attention to Microfinance Institutions (MFIs) that are active in your target area.  If the present client outreach of the MFIs already covers most of your target area, consider the following: look for alternative sites for market-testing your microfinance product; or target a market niche not being served as yet by the competition. Assessing Risks from Competition

17. Major household income sources - Seasonal patterns - Threats to household income flows: natural calamities, low farm commodity production, low prices, high production costs, unemployment/lay-off of workers, peace and order Risks to Microenterprises - Relocation of shops/stalls, fire - Seasonal income fluctuations - natural calamities, rainy season Assessing Market Risks

18. Other Risk Factors - Rate of migration (in and out migration) - Level of ownership of dwelling - level of indebtedness of microenterprises - loan repayment experience of other lenders - previous or current experience of the bank in lending in the area. Assessing Market Risks