Cautious Resilience: The Impact of the Global Financial Crisis on Latin American & Caribbean Microfinance Institutions

This study analyzes impact of the global financial crisis on the microfinance sector in Latin America and the Caribbean (LAC). It combines interviews of MFI and microfinance investment vehicle (MIV) leaders with MicroRate's own observations. The international financial crisis was quick to affect the financial markets of the LAC region. MFIs already feel the affects of tightening credit markets. The region took longer to feel the slowdown in the real economy. Effects on MFIs include:

• Cutting back on growth, in anticipation of a deteriorating economic situation;
• Mitigating risk through stricter lending criteria, strengthening provision policies and focusing on existing clients;
• Moving down market by reducing average loan size;
• Dedicating efforts to institution-building activities;
• Accumulating cash in anticipation of a potential donor slow-down.

MicroRate expects the impact of current economic cycles on microfinance to be stronger than it has been in the past. MFIs that help the poor create wealth should do well, even in times of recession. However, institutions that lend for other needs will be heavily exposed to economic cycles.