Paper

Microfinance Banana Skins: A Different World

Identifying risks and challenges facing the microfinance sector
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This paper examines findings from the 2009 Banana Skins survey, and identifies issues that deserve further attention from practitioners, investors and officials.

The 2009 Banana Skins survey identifies the main risks facing the microfinance industry as being crisis-related. The crisis had the following effects:

  • Credit crunch impacted funding markets;
  • Recession impacted credit quality;
  • Microfinance industry found it difficult to sustain its reputation for good work;
  • Institutional risks took second place, except for management quality;
  • Microfinance was not insulated and needed to fit into a globalized finance industry.

The survey highlighted the similarity between responses from different regions of the world. A positive finding was that microfinance had the resilience to come through the crisis in better shape than the mainstream banking industry. Going forward, MFIs need to go through a period of low/zero growth and lower profitability until they regain their strength. They must understand their risks, and ensure that they have the resources and skills to handle them. To do so, they will need to assimilate and utilize the lessons learnt from the crisis and develop stronger management skills.