NEWS WIRE: Middle East & North Africa: Microfinance Institutions Unaffected by Global Economic Meltdown

Source: The Daily Star

Original article available here.

BEIRUT, LEBANON, May 13 – Microfinance has proven itself so far to be very resilient to what is happening globally, and its clients are not necessarily experiencing anything that is correlated to the events in the US, Bob Annibale, Global Head of Microfinance at Citigroup said on Tuesday.

“We shouldn’t be complacent as we look ahead because in spite the fact that many of our markets are much more resilient than they were in the past in terms of stronger reserves and much stronger domestic banks, they are going to feel some of the impact that come out of the global market trends,” he said.

His remarks came during the 6th annual Microfinance conference held at Le Royal Hotel in Beirut, organized by Sanabel, the Microfinance network of Arab countries. The conference aims at discussing the challenges facing the Microfinance sector in the Arab world and the impact of the financial crisis on this sector.

Annibale says that one of those effects is what is happening in terms of global bank lending to emerging markets and the impact that this will have on the domestic markets if not felt yet. “Capital flows to the emerging markets had dropped very sharply in 2008, and according to the Institute of International Finance it will unprecedentedly decline in 2009. We haven’t seen this much in the MENA region but let’s look ahead,” he said.

“In 2007, net bank lending for global banks and markets reached a positive record of $410 billion to the emerging markets. That was an enormous funding in the economies of emerging markets. In 2008 that fell to a $167 billion. The Institute of International Finance predicts that in 2009 there will be a negative number of net outflow from the emerging markets to these global markets of $61 billion, that’s a $227 billion shift in a span of the year,” he added.

Microfinance refers to the provision of financial services to poor or low-income clients, including consumers and self employed who have no access to conventional banks. According to a report prepared by Sanabel, the emerging industry has expanded tremendously since its commencement as there are today approximately 100 active microfinance institutions across the Arab world serving 3.5 million clients as compared to 130,000 in 1999.It says that the number of microfinance clients remains quite insignificant when considering that 60 million people live on less than $2 per day in the Arab countries.

Annibale said that the impact of the financial crisis on microfinance has more to do with clients locally and in their own economies, and added that this was coming out of few years of a significant increase in prices of food and energy and many other cases of inflation.

He said that loan portfolio is decreasing for about 64 percent in microfinance institutions and Portfolio-At-Risk (PAR) is increasing for about 69 percent. “There is a general trend where we see that growth went down in general in microfinance and I don’t think that this is a bad thing. PAR has been increasing generally around the world in terms of Microfinance. We don’t see that this is alarming in any global trend but the trend generally is there, and that might be the reason of some of the rapid growth that we have seen in last few years, not particularly a result of the financial crisis,” he added.

Annibale said that it is important to keep on accessing diverse local funding sources, and collectively working with regulators to bring their attention to how they can stimulate this connection between the domestic market and domestic banks, as well as the microfinance sector to support growth.

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