The Global Financial Crisis and Its Impact on Microfinance
This paper examines the impact of the global financial crisis on microfinance. It specifically examines changes in client incomes, MFI funding structures, stability of deposits, institutional refinancing risks, and foreign currency dislocations. It also highlights the shift in attention from commercial to development finance investors, triggered by the financial crisis. Medium and long-term effects of the world-wide recession are likely to be punishing for poor people and the institutions that serve them. Increased prices combined with the economic slowdown are squeezing household incomes. Study findings indicate that MFIs face:
- Liquidity and credit risks because clients are withdrawing savings and finding it difficult to meet repayment commitments;
- Lower exposure to refinancing risks, if the have a broad deposit base;
- Tightening liquidity and rising deposit costs;
- Interest rates hikes and currency depreciation, if borrowing in foreign currency.
The financial crisis has illustrated the value of adapting a deposit-led approach to building domestic financial systems that can serve the poor with credit and savings services.
