Enhancing the Resilience of Microfinance Institutions and Programs: Lessons Learned from the Asian Financial Crisis

This paper discusses the Asian Financial crisis and lessons learned from it. It discusses in detail:

• The challenges Asian countries faced during the crisis;
• The policy framework of these countries;
• Macro-level reforms of the policy and legal framework, with focus on Indonesia;
• The pitfalls of deregulation without supervision;
• The origin, development and infrastructure of microfinance in Indonesia;
• The experience of the Philippines.

The paper presents evidence form selected Asian countries to show that:

• Microfinance, on the whole, has weathered the crisis well, especially in Indonesia;
• Demand for, and supply of, micro-credit has been largely unaffected.

The paper finds that the resilience of microfinance can be attributed to the following factors:

• The institutional autonomy and self-reliance of microfinance institutions (MFIs);
• Deregulation of interest rates, institutional liberalization, the provision of appropriate legal forms for MFIs, prudential regulation and effective supervision.

The paper recommends that in times of crisis:

• Governments should:
  • Provide an adequate policy and legal environment;
  • Assist MFIs in building their own networks.
• Donors should focus on:
  • Strengthening the institutional autonomy of MFIs;
  • Building apex organizations of MFIs;
  • Preventing unnecessary government interventions.

The paper concludes with special suggestions with regard to Indonesia.