Written by Xavier Reille, Christoph Kneiding, and Meritxell Martinez and based on research by the Consultative Group to the Poor (CGAP), released May 2009 as a brief, 4 pages, available at: http://www.cgap.org/gm/document-1.9.34453/CGAPBrief_SurveyResults.pdf
In March 2009 over 400 microfinance institution (MFI) managers were surveyed by CGAP in order to reveal how the current financial crisis has affected MFIs and their clients. The survey focused on which regions were most affected and why, whether MFIs are proving resilient to the financial crisis and whether the liquidity of MFIs will change because of this.
MFI clients are feeling the effects of the crisis
Borrowers are being affected by the economic downturn and 58 percent of MFI managers responded that their client had been affected ‘somewhat’ (level three, on a scale of one to five). In Eastern Europe and Central Asia (ECA) clients are more affected than those in the Middle East and North Africa (MENA). Urban clients, especially in Latin America and the Caribbean (LAC) are the most affected.
Increases in food and fuel prices over the past 18 months have made it more difficult for borrowers to repay loans. 60 percent of respondents indicated that borrowers are finding it harder to repay. This is more significant in the ECA (75 percent) and LAC (67 percent) regions. In Asia and sub-Saharan Africa 62 percent of respondents indicated that clients are spending more income on food compared to 6 months ago. To compensate for increased prices clients are reducing their food intake or spending more of their income on food. Workers in manufacturing, petty trade and agriculture are the most affected by the increase in prices of food and production inputs.
Signs of stress on MFIs
Gross loan portfolios have declined or been steady over the past six months according to 65 percent of MFI managers. This is in contrast to the 47 percent increase in loan portfolios reported to the MIX market, the microfinance information clearinghouse, in 2007.
69 percent of respondents stated that there had been an increase in portfolios at risk (PAR). In the ECA region 88 percent of surveyed MFIs reported increasing PARs. This is probably due to the increased economic hardship of borrowers.
Over the past six months 52 percent of MFIs surveyed reported liquidity constraints. Smaller MFIs were affected more than larger MFIs with 64 percent compared to 35 percent reporting problems with funding. Small and medium MFIs expect this situation to worsen particularly in sub-Saharan Africa and South Asia.
MFI managers that mobilize savings indicated that they are willing to expand loan portfolios in the coming months. Furthermore, 61 percent of MFIs are not passing on higher interest rates of 2-4 percentage points to clients and 9 percent reduced rates.
Outlook
Food prices will continue to rise with a corresponding drop in client repayment rates. Women and children will be hit the hardest as incomes also drop.
MFI managers report that they will continue to experience liquidity issues and credit risk concerns. However they appear to be optimistic about the future, believing that MFI performance will remain stable or improve over the next six months.
By Sally Levy, Research Assistant
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