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Management is the issue, not slowdown

Management is the issue, not slowdown

Mumbai: Asia’s microfinance institutions have not been affected by the economic slowdown as much as their peers in other continents but continue to face challenges in management, a recent survey said.

Corporate governance, technology and staffing are the biggest challenges for Asian microfinance institutions, the Microfinance Banana Skins 2009 survey showed.

Political interference in Indian firms is an issue. Capital, though, is not a worry.

“The Indian microfinance agencies have been able to attract capital from global investors," Bob Annibale, global director, Citi Microfinance, said over the phone from London. “The domestic sources of funds in India is also strong."

Microfinance institutions in the US, Latin America and most of Europe face credit and liquidity risk as well as funding issues, the survey said.

The survey, published by the the Centre for the Study of Financial Innovation, was sponsored by Citi Foundation and the Consultative Group to Assist the Poor.

It was designed to identify and rank the main risks—the so-called banana skins—facing the microfinance industry at a time of economic crisis, with responses from at least 400 practitioners, investors, regulators and analysts in 82 countries.

“Fortunately, lending to us have been categorized as priority sector, hence banks have been lending and we have no liquidity concerns. But smaller microfinance institutions are facing problems in raising debt and mobilizing capital," said Mathew Titus, executive director of Sa-dhan, an association of microfinance institutions in India.

“The biggest supplier of credit programmes is state governments so there is some level of competition MFIs (microfinance institutions) face with the local moneylender and cooperative societies of the private sector, which leads to conflicts and political interference," Titus said.

Somak Ghosh, group president, corporate finance and development banking at Yes Bank Ltd, said, “In India, the problem that MFIs will face is rapid growth. They will see corporate governance, risk management and technology related stresses."

Political interference, the survey said, takes many forms: directed lending, interest-rate caps, loan forgiveness and subsidized competition.

The report says the two most mentioned forms of political interference were asset grabs and controls on the cost and availability of loans.

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