Lessons for Strengthening Microfinance Institutions through Financial Crises, Fluctuations in Food and Fuel Prices, and Other Major Risks

This paper shares lessons to help MFIs weather the challenges of future financial crises, fluctuations in food and fuel prices, and other major risks. It identifies components of financial crises that are most relevant for MFIs and their consequences, reviews MFI performance during the 2009 financial crisis and explores reasons why the sector demonstrated less resilience.

The paper discusses whether a focus on financial crises may lead to underestimating other major risks. Key lessons include:

• Impact of recession on microfinance providers increases if MFI clients are part of the formal economy;
• Resilience of its clients defines the resilience of an MFI;
• Increase in the formalization of the sector is one of the reasons MFIs were less resilient during the 2009 economic crisis;
• Product diversification is good, but more research is necessary to understand its trade-offs for the microfinance industry;
• MFIs should re-evaluate their growth targets to prevent crises caused by market saturation;
• MFIs can strengthen operations by focusing on lending methodology and understanding the danger of overestimating market size.