Challenges in Microfinance: An EY Perspective

This paper describes the latest trends in microfinance and presents how Ernst & Young (EY), as a provider of services to MFIs and microfinance investment vehicles (MIVs), can help handle the various challenges in the industry. It discusses EY’s position in the microfinance industry with a focus on the products and services provided by the organization. It also discusses the transformation of microfinance from the provision of basic microcredit services toward the agenda of financial inclusion which includes broader services such as savings, insurance, and payment products. The paper investigates into the role of innovation as the enabler of financial inclusion and identifies the various opportunities and challenges that arise from commercialization in microfinance. Key challenges highlighted in the paper include:

• Financial reporting requirements are ever-changing;
• Valuation of investments in the microfinance industry is challenging;
• Listing a microfinance entity is a transformative process;
• Scrutiny of the tax regimes applied by MFIs and MIVs has increased;
• Financial accounting is not the core business of an MFI or an MIV;
• Increased growth requires robust risk management;
• Turnaround management needs a structured approach;
• Stakeholders require transparency regarding the impact of microfinance and impact investing.