Accessible savings services make countries more resilient during times of financial crisis, a new report from Rui Han and Martin Melecky of the World Bank finds. It’s been established that access to savings leads to increased financial stability at the individual and household level, but this report is the first empirical evidence of this relationship at the financial systems scale.

As the current banking crisis in Cyprus reminds us, during times of financial uncertainty and crisis, the potent threat of widespread bank withdrawals (bank runs) emerges. In 2009, the volume of global deposits shrank by about 12 percent in a ratio compared to GDP.

The report investigated the effect of bank deposit service accessibility on the stability of bank funds in 113 countries during the 2008 global financial crisis. It found that a 10 percent increase in savings service accessibility mitigates a country’s deposit withdrawal rates by about 4 percent, with this link spanning nations of all income levels and strongest in middle income countries. One reason for this increased readiness of clients in middle income countries to withdraw funds is low familiarity and trust of banks.

To read the full report, click here.

Image Credit: IADB

Have you read?

Accumulating Financial Assets: Microfinance Ambivalence about Savings and the Poor

“Can we make savings a little more interesting for people, please?”

Understanding Savings Behavior: A Comment on “The Financial Behavior of Rural Residents”

Since I started working with the Center for Financial Inclusion this fall, I’ve been inspired to observe the client-centered nature of the microfinance industry.  For example, I recently read a report by MicroSave, an organization that focuses on market-led microfinance in Africa and Asia, which confirmed this client-centered trait. The report examines client experiences in the wake of the microfinance crisis in Andhra Pradesh.

Below are some of the findings of the report that I found most striking:

• With MFIs in Andhra Pradesh drastically reducing new lending, borrowers have been forced to seek out alternative sources for lending. In 66 percent of the research sessions MicroSave conducted, clients described the major burden of these alternative loans as the “exorbitant” interest rates.
• Ninety percent of the people interviewed said that they were actually willing to repay loans to MFIs during the crisis, on the condition that new loans would be distributed.
• A majority of respondents said they preferred not to take loans directly from mainstream private and public sector banks due to “inordinate delays, cumbersome procedures, and the complex documentation requirements.”
• While clients like the timely delivery and convenience of loans from MFIs, they disliked having to take on group responsibility and the lack of a grace period.

The study goes on to outline recommendations for MFIs, regulators, and state governments to adopt more stringent client protection policies.

It’s great to see that organizations like MicroSave are pulling important lessons from difficult events and making recommendations for progress in client protection. As a relative novice to the world of financial inclusion, this report leaves me both curious and optimistic about what the future holds for the industry.

Have you read?

Consequences of Over-Indebtedness: Lessons from India

On Microfinance: Who’s to Blame for the Crisis in Andhra Pradesh?

The Lessons of Andhra Pradesh

As leaders of the microfinance industry in India assemble in Delhi this week for the ACCESS Microfinance India Summit, India-watchers outside the country can follow events in the sector by taking a look at the latest report from M-CRIL: “M-CRIL Microfinance Review 2011: Anatomy of a Crisis.”  The executive summary is available as a stand-alone document, and it provides instructions for purchasing the entire data-drenched report.

For me, the best parts of the report are the numbers that help dimension the sector and its crisis, as well as its no-holds-barred approach to stating conclusions.  Here is a small sampling:

On the role of microfinance in India: “Microfinance is now established as a significant component of the financial system in the country and its contribution to financial inclusion continues to rival, if not exceed, that of the rural banking system.”  “With 31.8 million borrower accounts the size of the microfinance sector more than matches significant parts of the Indian financial system in terms of the number of citizens affected. This number is more than three times the number of micro‐credit accounts serviced by the Regional Rural Banks and is greater even than the total number of such micro‐accounts held by the commercial banks.”

On multiple lending in Andhra Pradesh: “In AP, while the number of MFI loans is just over 100% of the number of eligible financially excluded families, SHG loans are actually 310% of that number….This raises the question whether it is SHG rather than MFI lending that is responsible for multiple lending and the crisis.”

On the consequences of the crisis for MFIs and their investors: “A ‘hair cut’ for both the MFIs caught in the crisis and for their lenders now seems inevitable. It is only the closeness of the cut (the proportion of investment lost) that remains to be determined….The effect of the crisis resulting from the AP ordinance spread much more widely than the state of Andhra Pradesh. This effect was not due to any delinquency contagion reaching clients outside the state but rather due to the drying up of bank funds to MFIs. [This] has brought about the shrinkage of the sector by one‐third from the peak in October 2010.”

On the consequences of the crisis for the poor: “Most low income families in AP have been thrown back into the not‐so‐benevolent arms of moneylenders. Many low income families outside AP have also suffered collateral damage as the drying up of onlending funds from commercial banks has caused a reduction in MFI operations throughout the country.”

On the proposed Microfinance Act: “Emerging from the crisis, the Government of India, through the proposed microfinance law now seeks to accord the sector with a level of importance commensurate with its contribution to millions of citizens. The proposed Microfinance Act would provide the sector with the full attention of the central bank, would enable MFIs to offer at least limited deposit services to low income families (recognising their need for savings facilities) and protect it from the whims of local government by clarifying that microfinance is governed by national laws and is, therefore, not a state‐level concern.”

Many thanks to Sanjay Sinha and his team. Highly recommended!

Have you read?

What’s the Interest Rate on a Car Loan from the State Bank of India?

SEWA Founder Bhatt Appointed to RBI Board of Directors

IFC to Finance the Smart Campaign’s Microfinance Client Protection Initiatives in India

The Reserve Bank of India (RBI) on Tuesday declared in both its Annual Monetary Policy Statement and its statement on “Bank loans to Micro Finance Institutions (MFIs) – Priority Sector status”  that it has decided to “to accept the broad framework of regulations recommended by the [Malegam] Committee”.

Although more details on the regulation are to be released later this week, the RBI did make some significant and welcome changes in the regulations, including:

• Repayment frequency of loans can be at the discretion of the client. The earlier recommendation had mandated monthly collections, whereas most Indian MFIs collect loans on a weekly basis.
• Individual loans to be considered as microfinance. The earlier recommendation was only limited to group lending.
• Making a distinction between rural and non-rural in the income qualification for loans to be considered microfinance.
• Increased the proposed interest rate cap from to 26% up from 24%. This is still extremely restrictive for small institutions, but will make a major difference to some of the larger players, who already operating around these rates.

The regulations, although they have been eased, will pose significant challenges to smaller MFIs and still do not address the continuing repayment crisis in Andhra Pradesh.

“The AP MFI (Regulation of Money lending) Act will continue to apply for all MFI operations in the State even after RBI’s policy announcement today,” Reddy Subrahmanyam, principal secretary of the Department of Rural Development, Andhra Pradesh Government, told Business Line.

For other reactions please see:

“Sa-Dhan welcomes RBI’s regulation on microfinance” – Microfinance Focus, May 4, 2011
“Smaller MFIs may find it tough to follow RBI norms” – LiveMint.com, May 4, 2011
“MFIN Reaction to Monitory Policy issued by RBI” – India InfoLine, May 4, 2011

For reference, here is the RBI’s circular:

Bank loans to Micro Finance Institutions (MFIs) – Priority Sector status

We invite a reference to paragraphs 92-93 of the Annual Policy Statement for the year 2011-12.

2. It has been decided to regulate microfinance sector by the Reserve Bank as a separate category. In this connection, we  advise that bank credit to Micro Finance Institutions  extended on, or after, April 1, 2011 for on-lending to individuals and also to members of SHGs / JLGs will be eligible for categorisation as priority sector advance under respective categoriesviz., agriculture, micro and small enterprise, and micro credit  (for other purposes), as indirect finance, provided not less than 85% of total assets of MFI (other than cash, balances with banks and financial institutions, government securities and money market instruments) are in the nature of “qualifying assets”.  In addition, aggregate amount of loan, extended for income generating activity, is not less than 75% of the total loans given by MFIs.

3. A “qualifying asset” shall mean a loan disbursed by MFI, which satisfies the following criteria :

i.    The loan is to be extended to a borrower whose household annual income in rural areas does not exceed Rs.60,000/- while for non-rural areas it should not exceed  Rs.1,20,000/-.
ii.    Loan does not exceed Rs.35,000/- in the first cycle and Rs.50,000/- in the   subsequent cycles
iii.    Total indebtedness of the borrower does not exceed Rs.50,000/-.
iv.    Tenure of loan is not less than 24 months when loan amount exceeds Rs.15,000/- with right to borrower of prepayment without penalty.
v.    The loan is without collateral.
vi.    Loan is repayable by weekly, fortnightly or monthly installments at the choice of the borrower.

4. Further, the banks have to ensure that MFIs comply with the following caps on margin and interest rate as also other ‘pricing guidelines’, to be eligible to classify these loans as priority sector loans:

i.    Margin cap at 12% for all MFIs. The interest cost is to be calculated on average fortnightly balances of outstanding borrowings and interest income is to be calculated on average fortnightly balances of outstanding loan portfolio of qualifying assets.
ii.    Interest cap on individual loans at 26% per annum for all MFIs to be calculated on a reducing balance basis.
iii.    Only three components are to be included in pricing of loans viz., (a) a processing fee not exceeding 1% of the gross loan amount, (b) the interest charge and (c) the insurance premium.
iv.    The processing fee is not to be included in the margin cap or the interest cap of 26%.
v.    Only the actual cost of insurance i.e. actual cost of group insurance for life, health and livestock for borrower and spouse can be recovered; administrative charges to be recovered as per IRDA guidelines.
vi.    There should not be any penalty for delayed payment.
vii.    No Security Deposit/ Margin are to be taken.

5. The banks should obtain from MFI, at the end of each quarter, a Chartered Accountant’s Certificate stating, inter-alia, that (i) 85% of total assets of the MFI are in the nature of “qualifying assets’’, (ii) the aggregate amount of loan, extended for income generation activity, is not less than 75% of the total loans given by the MFIs, and (iii) pricing guidelines are followed.

6. The guidelines relating to categorization of (i) investment by banks in securitised assets originated by MFIs and (ii) outright purchase of loan portfolios of MFIs as priority sector advances in the books of the banks would be issued in due course. In the meantime, fresh assets would qualify for priority sector treatment only if they satisfy the criteria of qualifying assets and adhere to the pricing guidelines as specified above.

7. Bank loans to MFIs, which do not comply with above conditions and bank loans to other NBFCs, will not be reckoned as priority sector loans w.e.f. April 1, 2011. The bank loans extended prior to April 1, 2011 classified under Priority Sector will continue to be reckoned under Priority Sector till maturity of such loans.

8. We are in the process framing regulatory guidelines on the other recommendations of the Malegam Committee. Micro Finance Institutions to be included in the above regulatory framework have to initiate requisite organisational capacity building exercise so as to enable them to conform to the above guidelines. Banks which are lending to MFIs will be one of the important pillars of the new regulatory framework and, hence, they need to build up necessary criterion of due diligence while processing loan applications from MFIs. This process should be initiated immediately to ensure that MFIs availing finance from them are capable enough to put up the systems in terms of Corporate Governance, Human Resource Management, Customer Protection and other aspects of the proposed regulatory framework, so as to ensure that once the new regulatory framework is in place, Micro Finance Institutions can carry out their operations without any major disruption.

9. Kindly acknowledge receipt of this circular.

Yours faithfully,

(Deepali Pant Joshi)
Chief General Manager-in-Charge

One of the more profound reflections on the crisis in Indian microfinance comes to us from Vijay Mahajan, who is undertaking Shodh Yatra, an “extended grassroots enquiry into the lives and livelihoods of poor people.”

His journey comes in the form of a “walk while in a village or a town, stopping by every once in a while to have a dialogue; and drive between habitations.”

Mahajan, who makes Gandhi a spiritual touchstone as he blogs about his experiences, is a trailblazer in Indian microfinance who was listed by BusinessWeek’s Asia edition as being among the country’s 50 most powerful people.

“I intend to do this [Shodh Yatra] for 60 days over a period of Jan 30, 2011 (today) till April 18, 2011,” he writes. “The beginning date and place are significant to me – today is Gandhiji’s martyrdom day and I am starting from his Ashram in Sevagram, Wardha; near Nagpur in Central India.”

Mahajan’s roots in microfinance include co-founding several development organizations: BASIX (www.basixindia.com), PRADAN, Development Finance Forum, Andhra Pradesh Mahila Abhivruddhi Society (www.apmas.org), Sa-Dhan (www.sa-dhan.org) and the Microfinance Institutions Network (www.mfinidai.org).

“For financial inclusion and for livelihood promotion, I will use this opportunity to revisit fundamental assumptions about customers and collaborators, about cost structures and revenue models, and more fundamentally, about how to do all this responsibly as well as sustainably,” writes Mahajan, who recently became chairperson of the executive committee of  the Consultative Group to Assist the Poor (CGAP).

There is, of course, much more happening here than can be encapsulated in this blog post.

To learn what Mahajan learns about what people are thinking and feeling about microfinance, you can follow his progress on his blog, http://vijaymahajan.wordpress.com/.

In November of 2009, we reported that the microfinance industry in Nicaragua is under siege by a politically motivated group of borrowers.  Calling themselves “No Payment Movement,” they pressured the government to lower their interest rates, suspend debt recovery trials, and grant grace periods on repayment. On February 24^th, 87 out of 92 members of the National Assembly voted to order microfinance companies to sit down with their delinquent borrowers and renegotiate all loans past due since June 30, 2009; microfinance companies were also ordered to suspend asset seizures and trials. Furthermore, the assembly has instituted interest rate caps of 16% per annum on all renegotiated loans. President Ortega has not yet signed the bill, which is a requirement before it becomes into Law, however it is expected that he will.

The Microfinance Association of Nicaragua, ASOMIF, had, in numerous occasions, voiced its opposition to the law, saying that it would institute  a culture of non-payment that is bad for both the country and for individual borrowers. Such a culture could make foreign investors wary of Nicaraguan deals, withholding financing for MFIs serving as many as 450,000 clients in good standing. 

Some investment funds who had previously spoken out against the law have now said that they are not going to make new investments in Nicaragua. For instance, Incofin, a Belgium-based investment fund, will not renew investments of US$5 million in the country. By making collection of bad debts much more difficult for Nicaraguan MFIs, the Law creates uncertainty about the ability of those MFIs to maintain sound portfolios. Add that to the already tense global capital markets, and you’ve produced a set of very nervous investors. 

Investors and microfinanciers agree that this law sends the wrong message to borrowers. In the words of Silvio Conrado, of the Banco Centroamericano de Integración Económica, “This can give borrowers a message that those who pay their loans on time are not very smart. Those who are not paying their loans on time can all of a sudden have better interest rates, even better than those punctual clients, and that is a dangerous thing.”

We will continue to monitor the situation in Nicaragua to see how the industry, investors, and the government proceed.

CGAP has just come out with an important new Focus Note analyzing recent microfinance repayment crises in Nicaragua, Morocco, Bosnia, and Pakistan—“Growth and Vulnerabilities in Microfinance.” Reading it set me thinking back to the Bolivian repayment crisis of 1999-2000 and to the lessons that came out of it.

The Bolivian crisis had all the same hallmarks as recent crises.  New entrants, in this case consumer lenders, came in with very aggressive growth strategies, as second movers behind the more established MFIs.  They tolerated and even welcomed multiple borrowing.  Borrower difficulties were triggered by a recession, which in turn triggered a virulent—and politically motivated—debt protest movement. At one point protestors piled all the computers of MFI branches into the street and set fire to them.  At the height of the crisis, the outlook for Bolivian microfinance was bad. But today, Bolivian microfinance is thriving, and that includes all of the leading microfinance institutions who experienced the crisis.

A number of key short- and longer-term actions made it possible for Bolivian microfinance to survive, recover, and move to a more stable footing.

In the short term, the Bolivian MFIs instigated intensive dialogue with government so that responses to the debt protestors could be worked out together. They then announced that they would work with every single client who the protestors named to resolve their repayment problems. This helped defuse the protests.  In fact, the big numbers melted away as it turned out there were only a few seriously troubled borrowers in the debt protest movement. The banking regulators issued out a new rule limiting debt service for consumer loans to 25 percent of a person’s salary.  This shattered the business models of most of the consumer lenders, who fled Bolivia or quietly closed operations, losing millions on the way.

Longer term, MFIs ended up writing off many loans and taking a big hit to profitability for a couple of years.  They survived by drawing on their past strong financial, especially the financial cushions they had in terms of prudent provisioning and leveraging.  NGOs working in rural areas were hit less hard than regulated urban lenders who occupied the same market space as the consumer lenders.

Since the crisis, and partly as a result, the MFIs in Bolivia strengthened their associations, which became strong and competent organizations, able to work with government and monitor the status of their members.  Government, associations, and MFIs worked together to improve the coverage and timeliness of credit bureaus.  And MFIs strengthened their own operations, in improved repayment capacity analysis and by seeking to offer clients greater value—a fuller range of services.

Each repayment crisis has its own specifics, but the lessons from Bolivia give some indication of the paths the microfinance industry can take to resolve and rebuild—and possibly even prevent the next crisis.

Credit: El Nuevo Diario, http://impreso.elnuevodiario.com.ni/2009/09/ 08/nacionales/109207

The microfinance industry in Nicaragua is under siege by a politically motivated group of borrowers who call themselves the No Payment Movement (Moviemiento No Pago).  The Movimiento No Pago includes from 3,000 to 5,000 producers, merchants and microentrepreneurs who are led by the former mayor of Jalapa Omar Vílchez. The movement commenced in Jalapa in the summer of 2008, with the takeover of an MFI and a riot incited by a protest speech.

Recently, the leaders of the movement have demanded that the Congress approve a Moratorium Law to give debtors a 10 year amortization period with interest rates that do not exceed 8 percent APR as a condition to stop harassment of the microfinance industry. The leaders of the Movimiento No Pago from the North and Caribbean regions of Nicaragua have threatened to burn the buildings of MFIs, take hostage MFI personnel and escalate their violence if their demands for a moratorium law are not met.

Credit: El Observador Económico http://www.elobservadoreconomico.com/ articulo/933

There has been important opposition to this moratorium law from many sectors. Several newspaper editorials and articles speak against the moratorium bill, which has not yet moved toward legislative action. The law was sent back to the economic committee of the National Assembly and Awaits review. 

According to one journalist, “Before erasing two decades of investment and progress with a vote, the National Assembly should investigate how microfinance operates and the reasons for its high costs as well as its social and economic impact as well as its clients’ satisfaction. A law that rewards clientele without willingness to pay and punishes honest and punctual clients, will incentivize a non-payment culture at a loss for all of the social stakeholders involved, including the banking system.”

In separate statements (find here and here), a large group of microfinance investors and a microfinance network stated their concern. They warn that the deteriorating investment climate in Nicarauga might dry up funding sources for MFIs and that non-payment movements in other countries have reduced the growth of microfinance, depriving the people who need it most  from access to services.

For more information go to:

“No pago” en Plan Estatal – Informe de Ortega dice que es un ejemplo de defensa de economía familiar
http://impreso.elnuevodiario.com.ni/2009/01/13/nacionales/93311

Movimiento del no pago regresa – El dolor de cabeza para los empresarios de las microfinancieras ha vuelto.
http://www.laprensa.com.ni/archivo/2009/enero/09/noticias/politica/304975.shtml

Nicaragua: Asomif reporta C$80 millones en pérdidas
http://www.ekaenlinea.com/index.php?option=com_content&task=view&id=4397&Itemid=1

Movimiento No Pago en nueva embestida
http://www-usa.laprensa.com.ni/archivo/2009/septiembre/01/noticias/economia/346697.shtml

Productores y comerciantes morosos amenazan con quemar microfinancieras
http://es.biz.yahoo.com/04092009/185/productores-comerciantes-morosos-amenazan-quemar-microfinancieras.html

El “no pago” amenaza
http://www.laprensa.com.ni/archivo/2009/enero/21/suplementos/negocios/307258.shtml

Ortega en guerra contra financieras
http://www.laprensa.com.ni/archivo/2008/julio/14/noticias/politica/271630.shtml

Asomif no cederá ante amenazas – Dice que los No Pago no tienen respaldo en el interior del país
http://www.laprensa.com.ni/archivo/2009/septiembre/18/noticias/economia/349854.shtml

ASOMIF Press release available on-line : http://www.asomif.org/uploads/RTEmagicC_Comunicado_Asomif-Asobanp_v04-09-09_01.jpg.jpg

Caruna prospera a la sombra de Ortega – Activos pasaron de US$8.4 millones en 2006 a US$26.4 millones en 2008
http://www.laprensa.com.ni/archivo/2008/octubre/28/noticias/nacionales/291709.shtml

Protestan frente a la Asamblea de Nicaragua para denunciar a las microfinancieras – movimiento “no pago” cambia su nombre a movimiento “si pago” http://www.soitu.es/soitu/2009/02/12/info/1234397174_067979.html  

English Articles: https://nacla.org/node/6180 and http://fellowsblog.kiva.org/2009/10/08/following-the-no-pago-movement-in-nicaragua/

Posted in From the Field, Microfinance, Policy Tagged: Financial Crisis ]]> http://cfi-blog.org/2009/11/05/nicaraguan-microfinance-in-crisis/feed/ 8 Center for Financial Inclusion Nuevo Diario Observador Economico http://cfi-blog.org/2009/05/13/guest-post-a-report-from-the-fwa-event-macro-to-micro/ http://cfi-blog.org/2009/05/13/guest-post-a-report-from-the-fwa-event-macro-to-micro/#comments Wed, 13 May 2009 15:25:50 +0000 Center for Financial Inclusion http://centerforfinancialinclusionblog.wordpress.com/?p=436 ]]> > Posted by Kimberly Williams Weinrick and Meghan Gallagher

While the New York spring rain outside was slowing down, inside at the May 7 evening dicussion “Macro to Micro: Performance of Investments in Microfinance in the Current Financial Crisis” there were energetic and insightful attendees from many different backgrounds, professions, and perspectives, adding to the buzz in the room resonating with dynamic conversations.

The evening included a lively and broad-ranging panel that examined the story of how a sector whose chief purpose is to supply small loans to those without collateral or access to traditional financial services is at once maturing and reshaping itself during this time of turmoil. And the panel did not disappoint.

Beginning with an after-work networking reception in Midtown Manhattan, the microfinance program enjoyed a big crowd. Once the panel was introduced, it was clear that the exceptional participants would bring illumination and understanding to this evolving landscape. These panelists were: Roland Dominicé, Executive Director, Symbiotics; Ann Miles, Managing Director, BlueOrchard Finance, S.A.; Camilla Nestor, Director, Grameen Foundation; Susanna K. Tisa, Managing Director, FINCA International; and Mitchell Strauss, Special Advisor SME Finance & Director of Credit Policy, Overseas Private Investment Corporation (OPIC).

The insightful discussions focused on how microfinance institutions (MFIs), investors in this asset class, including the U.S. government, are coping with the challenges affecting the industry which include current global macroeconomic conditions and the ongoing financial markets crisis. The severity of these global impacts on an MFI’s portfolio quality and growth, earnings, as well as risk exposures could vary dramatically by institution.   One has to examine a country and/or regional market’s economic and financial characteristics and how these factors combine with the individual MFI’s strategies, structures [deposit taking or not], operating policies and capital profiles to determine the outcome of the impacts.  For example, in some countries MFIs experienced negative portfolio growth in the first quarter of 2009, whereas in North and Sub-Sahara Africa, MFIs were more resilient to the economic and financial shocks, resulting in continued portfolio growth. “With regard to growth,” said Roland Dominice, “we used to be at 50–60 percent per annum; now we are at 20–30 percent….But continued growth allows us to address the needs of more people [who need access to financial services].”

In general, across all MFIs portfolio quality had not deteriorated materially.  Profitability was weakened but is also still holding-up, “MFIs have seen some impact on profitability [due to the economy],” said Camilla Nestor, “although most MFIs which were profitable are still profitable.”

Panelists also agreed that many MFIs’ borrowings are exposed to foreign hard-currency dislocations (depreciation in their country’s currency) which makes their servicing of the foreign currency debt more expensive and contributes to a weakening of profitability. In fact, it was said that all MFI markets (except Bolivia) saw depreciation in their local currencies as compared with the U.S. dollar or the euro—a concern that all on the panel deemed as a priority for future consideration in loan execution.

Questions ranged from how credit rating agencies rate MFIs to views on MFI consolidations in varying regions or by MFI tiers—a thought that generated a lot of discussion. “I think we’ll start to hear more about the consolidation [of MFIs],” said Ann Miles. “We’re going to see more MFIs disappear at the smaller level.”

The Financial Women’s Association and the Microfinance Club of New York co-sponsored this event, which was moderated by Andrea M. Esposito, Managing Director, Standard & Poor’s, New York. The groups extended special thanks to The McGraw-Hill Companies for hosting this important event.

Kimberly Williams Weinrick and Meghan Gallagher contributed this article on behalf of the Financial Women’s Association.

Posted in Investing in Inclusive Finance Tagged: Financial Crisis, Investing in Inclusive Finance ]]> http://cfi-blog.org/2009/05/13/guest-post-a-report-from-the-fwa-event-macro-to-micro/feed/ 1 Center for Financial Inclusion Financial Women's Association Bookmark and Share http://cfi-blog.org/2009/05/08/microfinance-being-a-part-of-the-solution/ http://cfi-blog.org/2009/05/08/microfinance-being-a-part-of-the-solution/#comments Fri, 08 May 2009 15:31:39 +0000 Center for Financial Inclusion http://centerforfinancialinclusionblog.wordpress.com/?p=417 ]]> > Posted by Elisabeth Rhyne

I’m blogging today from the annual meeting of the ACCION Network taking place in Buenos Aires, hosted by Columbia Microcredito of Banco Columbia.  We spent a very interesting morning talking about the effect of the financial crisis on microfinance institutions and their clients in Latin America.  We’ve heard from Michel Burbano of Banco Solidario in Ecuador, Carlos Viteri of Financiera Apoyo Integral in El Salvador and Kurt Koenigsgfest of BancoSol in Bolivia.  Some of the points that really hit me this morning are:

• The severity of the crisis differs by country.  It is hitting El Salvador much harder than Bolivia because El Salvador is more integrated into the US economy.  What for MFIs in Bolivia is so far a somewhat challenging time is for MFIs in El Salvador a very serious situation.
• The crisis is still unfolding, but these MFIs have had time to think about how to respond and are already implementing their responses. Their most important message is: stick to your knitting.  Do what you do best.  The biggest concern is the rise of delinquency as clients’ businesses suffer.  The MFIs are responding in many ways.  The most important is focusing on their credit methodology, especially assessing client  ability and willingness to repay. 
• Some adjustments are necessary, including changing staff incentives.  When general delinquency rises, it becomes de-motivating to staff if the same standards are used for incentives as in good times.  BancoSol is investing in intensive staff training to help staff understand how to operate in the new situation.
• The other big concern, of course, is funding.  Among the members of the ACCION Network, this is not (yet) an emergency, but funders are definitely looking more carefully – and they have less money to lend.  Victor Telleria of FAMA pointed out that when funders evaluate MFIs today they cannot use the same benchmarks they use in normal times. When all institutions are under stress, it is important for investors to distinguish between those who are handling the stress well and those at risk of failing.  This is a topic for exploration during the coming Council of Microfinance Equity Funds meeting on May 18.

Stepping back, it struck me that while we’ve understood the special positioning of the microfinance sector during this time of financial crisis, microfinance can actually be a real part of the solution to the downturn.  Microfinance institutions have a great responsibility to assist their clients to survive the downturn – including new clients driven into the informal sector by the crisis.  Moreover, MFIs may be, on average, in better shape than many mainstream financial institutions to keep on working.  Because MFIs now serve so many people around the world, their role as a solution could turn out to be important.

Posted in Center for Financial Inclusion Tagged: Financial Crisis, Housing Microfinance ]]> http://cfi-blog.org/2009/05/08/microfinance-being-a-part-of-the-solution/feed/ 0 Center for Financial Inclusion Client and Loan Officer Bookmark and Share