CGAP Virtual Conference: Microfinance and the Financial Crisis

This paper presents a summary of CGAP's virtual conference held from 18 November to 20 November, 2008. MFI managers, central bankers, investors and advisers from 34 countries participated in the conference. It explored the impact of the financial crisis on MFIs and their clients.Credit crunch, inflation, currency dislocations and global recession are hitting microfinance in very different ways. Findings include:

• Job losses in the U.S. and Europe have led to fewer remittances;
• Client purchasing power has decreased while cash needs have increased, causing withdrawal of savings and strained repayments;
• Funds from domestic and international banks is tighter, slower and more expensive;
• Declines in MFIs' net income from foreign exchange losses ranged from 7 percent to 43 percent;
• Operating costs are rising;
• Institutional investors in microfinance are not seeing significant retail redemptions.

Conference participants made recommendations for MFIs and donors. The strongest message from the conference was that deposit-taking MFIs are well-insulated from refinancing risks. However, most deposit-taking MFIs mobilize larger deposits from non-poor customers, and these may be more sensitive to the economic downturn.