Recession may hit microfinance industry’s growth, funding

Recession may hit microfinance industry’s growth, funding
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First Published: Thu, Jul 09 2009. 07 21 PM IST
Updated: Thu, Jul 09 2009. 07 22 PM IST
New Delhi: The global microfinance industry may see a fall in growth and funding due to the economic crisis and declining investor confidence, a survey says.
“Far from being insulated from the economic mainstream as traditionally thought, microfinance could face a fall in growth and funding because of the global recession and declining investor confidence,” the ‘Microfinance Banana Skins 2009’ survey said.
The survey, published by the CSFI and sponsored by Citi Foundation and the Consultative Group to Assist the Poor (CGAP) and supported by the Council of Microfinance Equity Funds (CMEF), was designed to identify and rank the main risks or “banana skins” facing the industry at a time of economic crisis and change.
It reflects the views of more than 400 practitioners, investors, regulators and analysts in 82 countries.
The survey shows that the greatest risks all stem from the crisis, which include - a surge in bad loans, shortages of liquidity and funding, and declining profitability.
Other top concerns surround the ability of microfinance institutions (MFIs) to manage their way through the crisis because of weaknesses in management and corporate governance, the survey pointed out.
This would present the industry with its first major stress test since it emerged in recent decades as a fast-growing provider of small-scale financial services to the world’s poor.
The survey updates a previous poll carried out in early 2008 at the beginning of the crisis, and shows how sharply risk perceptions have changed since then.
Most of the risks which are now seen as threats to the sector’s prospects, such as the world recession and the credit crunch, were considered negligible only 18 months ago, it added.
Last year’s result reflected the traditional view that microfinance operates in a world of its own with abundant funding and loyal customers. But the crisis has shown that it is also exposed to the shocks of the “real economy,” survey editor David Lascelles said.
The Banana Skins report said that the crisis was global in its impact and every one of the 82 countries participating in the survey reported that financial and economic conditions had worsened, and were affecting local MFIs, though with regional variations.
However, the main sources of comfort are that MFIs have traditionally shown resilience to stress and could emerge from the crisis with a better reputation for looking after their customers than mainstream banks.
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First Published: Thu, Jul 09 2009. 07 21 PM IST