Global Recession and Microfinance in Developing Countries: Threats and Opportunities

This paper studies the impact of recession on MFIs in developing countries. The high growth evolutionary pattern of MFIs in underdeveloped countries has slowed down due to the lack of adequate funding. MFI seldom access capital markets directly. This shelters them from financial crisis in the short term. However, it also prevents them from using cheaper sources of finance when the economic outlook improves. The crisis might lead to consolidation, with small MFIs either merging into greater entities or simply disappearing. To manage the crisis, MFIs must:

• Increase reserves and capital adequacy;
• Decrease dependence on foreign funding and raise additional local money;
• Cut back on excessive growth;
• Focus on portfolio quality;
• Ensure that loan officers are informed and attentive to clients needs;
• Maintain and improve positive characteristics like low risk, short repayment installments, strong connections with borrowers, resilience and simplicity.

The recession could impact western countries more severely, reducing the gap between them and the poorer countries. Finally, the impetus the change must come from within each society; and it would be wise not to depend too much on ailing neighbors or overestimated western paradigms.