Microfinance Through the Crisis

This article identifies key factors that determine the timing and speed with which MFIs recover from the financial crisis.

Overall, MFIs have reported pressure on financial performance from slow or negative growth and weakening asset quality in 2009. Not all regions, however, and not all MFIs have been affected equally by the global financial crisis.

Case studies from Nicaragua, Bosnia and Herzegovina and Bolivia demonstrate that MFI recovery depends on several key factors. They include:

• Operating environment, which includes the macro environment, and health of the financial sector in which the MFI operates;
• Regulatory environment, which can either support growth or interfere with MFI development;
• Institutional capacity, including quality of management and corporate governance;
• Risk management, which is critically affected by quality of management, MFI investment in training staff and adequate risk management processes;
• Strength of underwriting standards, which includes cushions that were built into the MFIs assessment of a borrower's repayment capacity before the crisis;
• Commitment to a clear social mission; • Funding and reputation risk • Support from shareholders and microfinance networks.