Great initiative. Unfortunately it is not very likely that the whole micro finance sector con be rescued. Some countries will have the means to rescue the micro finance industry. Peru is a great example. However the question is if these countries will do the right thing to rescue the financial sector. The rescue package of the Peruvian Central Bank contains an amount of more than USD 8 BN that will be made available to micro and small businesses (at concessional interest rates and under state guarantee) . However it does not address liquidity problems of the financial sector that are caused by the freezing of current operations. Other countries with an exuberant micro finance sector lack the resources to support the financial sector. In those cases scarce resources will be used for large mainstream banks rather than for MFIs. Then there is a sinister group of countries that couldn´t care less if the micro finance sector would go bust. Either because they dislike the NGO background of many of these institutions or because the collapse of these MFIs would leave the borrowers without further payment obligations. This scenario is above all to be expected in the case of authoritarian regimes in countries with non deposit taking MFIs. (Nicaragua could become a point in case; in the past we have seen this scenario in Azerbaijan) So, if international support becomes available, it should prioritize:
1) With massive resources for liquidity bridge loans to MFIs in countries with a significant micro finance and SME finance industry but without resources to support this sector. Examples are Ecuador, Costa Rica, Pakistan and, probably, Bolivia and Colombia. In general I should look at the oil and gas producing countries.
2) With TA and advice for countries that do have the means to support the sector. (Like Peru, Mexico and India)
Regards
Erik Geurts, independent consultant, with long time board and investment experience in the sector
Great initiative. Unfortunately it is not very likely that the whole micro finance sector con be rescued. Some countries will have the means to rescue the micro finance industry. Peru is a great example. However the question is if these countries will do the right thing to rescue the financial sector. The rescue package of the Peruvian Central Bank contains an amount of more than USD 8 BN that will be made available to micro and small businesses (at concessional interest rates and under state guarantee) . However it does not address liquidity problems of the financial sector that are caused by the freezing of current operations. Other countries with an exuberant micro finance sector lack the resources to support the financial sector. In those cases scarce resources will be used for large mainstream banks rather than for MFIs. Then there is a sinister group of countries that couldn´t care less if the micro finance sector would go bust. Either because they dislike the NGO background of many of these institutions or because the collapse of these MFIs would leave the borrowers without further payment obligations. This scenario is above all to be expected in the case of authoritarian regimes in countries with non deposit taking MFIs. (Nicaragua could become a point in case; in the past we have seen this scenario in Azerbaijan) So, if international support becomes available, it should prioritize:
1) With massive resources for liquidity bridge loans to MFIs in countries with a significant micro finance and SME finance industry but without resources to support this sector. Examples are Ecuador, Costa Rica, Pakistan and, probably, Bolivia and Colombia. In general I should look at the oil and gas producing countries.
2) With TA and advice for countries that do have the means to support the sector. (Like Peru, Mexico and India)
Regards
Erik Geurts, independent consultant, with long time board and investment experience in the sector