Financial Crisis in Asia and the Pacific Region: Its Genesis, Severity and Impact on Poverty and Hunger

This study examines the severity of the current financial crisis and its implications for growth and poverty reduction in nine Asian countries. The study reviews literature and empirical evidence, and finds evidence of a positive role of finance on GDP and agricultural value-added growth. It also finds a reverse causality between GDP and agricultural growth on financial development. Study findings include:

• Financial development reduces hunger, but when the endogeneity of trade and finance is taken into account, the effect disappears;
• Higher interest rates, lower maturity periods and drying up of funding sources are likely to affect women, low income households and MFI loan portfolios;
• Contraction of credit, risk aversion of investors and global recession forecast gloomy prospects for the poor.

Finally, the extent of constraints on funding MFIs and degree to which the design of microfinance programs are altered to suit current conditions may determine whether the poor would be shielded from a marked deceleration in growth rates in the region.