Microfinance Banana Skins 2008: Risk in a Booming Industry
This report highlights findings from a survey that explores the risks and challenges facing microfinance as a business and a social service at a time when the sector is facing several challenges. The survey addresses the following questions with a special focus on MFIs with more than US $5M in assets, which are profitable and capable of commercial growth: What are the risks posed by the rapid growth and change of the microfinance sector? What are the lessons that practitioners and those who invest in the business can learn? The survey asked more than 300 respondents from 74 countries to identify and comment on the major risks, or "Banana Skins", that they saw facing the microfinance sector over the next two to three years. The respondents listed the following risk factors for microfinance:
- Uneven quality of management,
- Weak corporate governance and staffing
- Poor cost control
- Inability to manage new technology
- Inappropriate regulation in many countries
- Political governance
- Rapid growth in competition
- Market risks such as interest rates, foreign exchange and macroeconomic trends
- Unrealistic expectations
- Mission drift and reputation risk
- Too much funding and refinancing risk
Several respondents felt that competition, commercialization and growing dependence on management and technological skills would widen the gap between MFIs that were well prepared and those that were not.
