The Impact of the Global Financial Crisis on Microfinance and Policy Implications

This paper discusses the impact of the global financial crisis on microfinance. It also looks at the issue of microfinance systemic risk, by analyzing the performance of a large sample of top MFIs against domestic economic conditions and international capital markets.

The paper presents an empirical analysis of the factors behind MFI lending rates and interest rate spreads to assist in making informed policy decisions. Study findings indicate that:

• MFI performance is correlated to domestic economic conditions and to changes in international capital markets;
• High MFI growth has resulted in increase in scale and client base and adoption of better management practices and information systems;
• Microcredit has come to represent a significant share of GDP and private sector credit;
• These transformations have increased the systemic risk of the microfinance industry;
• Loan sizes, productivity, and MFI age explain differences in lending rate levels;
• More productive and efficient MFIs charge lower lending rates across a number of MFI groupings.

The study suggests that regulation promoting MFI competition and innovation in lending technologies have a better chance to result in decreased lending rates.