Weathering the Storm: Hazards, Beacons, and Life Rafts – Lessons in Microfinance Crisis Survival from Those Who have Been There

This paper presents seven case studies and three short overviews of MFIs who experienced crises in 2009-10. It discusses the paths that led to crisis, presents glimpses of their internal operations and lessons that other MFIs can learn from these experiences.

Many MFIs experienced serious downturns during 2009-2010. They had to fall back on their own wits to deal with their crises, because literature on the subject was sparse and there were no best practices or compendiums of case studies available that could provide them guidance. Findings include:

• Reckless growth, weak operations and internal controls, government action, and economic downturns were some reason that led to crisis;
• Focus on governance, looking beyond portfolio at risk, keeping leverage low and liquidity high, and being professional helped MFIs overcome crisis;
• Liquidity, capital and the confidence of clients, staff, and creditors helped MFIs turnaround their operations.

The paper recommends that MFIs should take things in stride, not panic, take the time to think things through, be decisive and listen to advice. The paper highlights the importance of seeking out external expertise if an MFI does not have experienced members on the board.