Financial crisis

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¿El microcrédito ayuda realmente a los pobres? Article 2010

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Esta publicación corresponde a la serie Enfoques, Nº 59 de enero 2010 y aborda el tema del microcrédito como una herramienta extraordinariamente poderosa para ayudar a las personas (en especial a las mujeres) a salir de la pobreza, a través de la financiación de sus microempresas y mediante el incremento de sus ingresos. Esa idea fue respaldada por cientos de historias inspiradoras sobre microempresarios que usaron sus pequeños préstamos para abrir o expandir sus negocios y registraron progresos notables no solo en términos de ingreso y consumo, sino también en términos de salud, educación y potenciación social. Sin embargo, ¿cuán representativas son esas anécdotas respecto de la experiencia general de los cientos de millones que obtuvieron micropréstamos y otros servicios de microfinanzas? ¿Se están exagerando os beneficios del microcrédito o, de manera más general, las microfinanzas?

The Global Financial Crisis and Its Impact on Microfinance Technical Note 2009

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Compared with other financial institutions, microfinance institutions (MFIs) have merged relatively unscathed from the financial crises of the past few decades. During the currency crises in East Asia and the banking crises in Latin America in the 1990s, institutions serving poor customers generally performed better financially than mainstream banks. At that time the clients and microenterprises financed by MFIs were not integrated into local banking and currency markets.

The effects of today’s global crisis are likely to be more complex, deeper, and more difficult to predict than in the past. What is clear is that the mediumand longer term effects of a worldwide recession are likely to be punishing for many poor people and the institutions that serve them. Anecdotal evidence from different markets suggests that as the consequences of the crisis ricochet around the globe—credit crunch, currency dislocations, job losses, and falling demand—MFIs are being impacted in very different ways. How institutions are affected will depend on factors such as the structure of an institution’s liabilities, its financial state, and the economic health of its clients. So far, policy makers have mostly focused on macro-level measures. And in some regions like Latin America, they are taking a cautious wait-and-see attitude for the first semester of 2009, with more clarity on their steps to be expected later this year.

Survey Regional Snapshots Report 2009

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Despite the severity of the current global financial crisis, microfinance institutions (MFIs) have shown greater resilience than many traditional banks, according to a new survey conducted by CGAP, in collaboration with the MIX, the Microcredit Summit, ACCION, Grameen, FINCA, Freedom From Hunger, MicroFinance Network, Opportunity International, Women’s World Banking, and Sanabel.

There have been few failures among MFIs since the onset of the current financial crisis. However, the more than 400 respondents to the March survey reported significantly tougher market conditions. The full impact of the financial crisis is likely to be felt in the second half of 2009. Accordingly, many MFIs are taking steps to cope, such as taking a more conservative lending approach and, in some cases, even cutting staff. Sixty-five percent of respondents to the CGAP survey reported declining—or at best stable—loan portfolios in the most recent six months, reflecting the impact of the credit crunch. In addition, more than two-thirds of MFIs reported an increase in their portfolio-at-risk levels.

There are, however, strong regional differences, with MFIs in more integrated economies—particularly Europe and Central Asia and Latin America—reporting the largest impacts from the crisis. Institutions in the Europe and Central Asia region have been hard hit by volatile currency markets, by the worldwide credit squeeze, and by a loss of confidence in their banking systems—shocks magnified by an accompanying economic downturn.

While half of the MFIs participating in the survey expected loan delinquencies to improve over the next six months, this optimism was tempered by the finding that more than 60% of MFIs expect to face liquidity pressures over the same period. A majority of MFIs report that the liquidity drought is hurting, with smaller institutions suffering more acutely than their larger counterparts. However, according to another new publication from CGAP, “Microfinance Continues to Grow Despite the Crisis,” MFIs can still rely on capital provided by the 104 microfinance investment funds in the market. These funds have a total of $6.5 billion in total assets, a figure that grew a remarkable 35% in 2008.

Overall, CGAP does not expect the current crisis to spur a decline in assets under management at microfinance funds. However, growth is seen moderating to between 10% and 35% in 2009. Redemptions should remain low and will be compensated by new contributions from public and retail investors.

The Impact of the Global Financial Crisis on Rural and Microfinance in Asia Paper 2009

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Using data from a quick survey of various rural (RFIs) and microfinance institutions (MFIs) in East Asia, the paper tries to find out those institutions and their clientele have been affected by the global financial crisis, how they have coped with the on-going crisis and what they plan to do in the future to ensure the stability of the rural financial system and the continuing access of clients to financial services. The microfinance sector in Asia continues to evolve with emphasis on efficiency and strong growth in outreach. The limited data from the quick survey validate the growth in loan portfolios and increase in the number of clients, with growth varying significantly by country depending on internal and external factors during the period before the global financial crisis. Impacts vary depending on external and internal factors faced by RFIs and MFIs. However, they continue to maintain a positive attitude and expect that business will pick up as a result of an increase in demand for loans to finance livelihood projects and various micro-enterprises. They are aware of the threats and opportunities brought about by the global financial crisis. The analysis leads to some lessons for policy makers, bank regulators, rural financial institutions and microfinance institutions that are committed to provide inclusive financial services to member clients.

Author Gilberto M. Llanto and Jocelyn Alma R. Badiola
Number of Pages 79 pp.
Primary Language English (en)
Region / Country Global
Keywords Global Financial Crisis, Credit Crunch, Loan Portfolio Quality
Related Resources
Cautious Resilience: The Impact of the Global Financial Crisis on Latin America & Caribbean Microfinance Institutions Study Guide 2009 English (en)

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MicroRate’s latest study analyzes MFIs, MIVs, networks and other affiliates to provided a snapshot of how the impact of the global financial crisis in Latin America and the Carribbean evolved during the last quarter of 2008. The study combines a number of interviews with leaders of MFIs and microfinance investment vehicles (MIVs) with MicroRate’s own observations gathered during several MFI ratings the first quarter of 2009.

Cautious Resilience  -  English (en)

The Impact of the Global Financial Crisis on Latin American & Caribbean Microfinance Institutions Report 2009

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The purpose of this study is to gauge the impact of the global financial crisis on the microfinance sector in Latin America and the Caribbean (LAC). The situation is still clearly evolving. For example, in October 2008, when interviews with microfinance institutions (MFIs) first began, a majority of responses reflected that growth had slowed somewhat, but not dramatically. Nonetheless, preliminary data show that by the end of 2008, portfolio growth had indeed slowed dramatically. Even now, it is apparent that the crisis is having a more profound impact than those directly involved realized only a few months ago. This study attempts to describe the situation as it has evolved during the last quarter of 2008. The study is not intended to be a comprehensive or methodical survey of the entire microfinance sector. Rather, it combines a number of interviews with leaders of MFIs and microfinance investment vehicles (MIVs) with MicroRate’s own observations gathered during many ratings of MFIs since the fourth quarter of 2008.

Global Financial Crisis and Proposed ADB Response Report 2009

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The global economy is experiencing a major downturn. A global financial crisis has caused economic activity to stall and dimmed the outlook for global growth. While the severity and duration of the crisis are still unclear, the major industrial countries are already in or close to recession and the global slowdown is expected to be deeper and much more prolonged than previously anticipated. As the deepening financial crisis intensifies its grip on the global economy, Asian economies have begun to feel its effects. The recently revised 2009 forecasts of the Asian Development Bank (ADB) for aggregate gross domestic product growth in developing Asia are 3 percentage points lower than growth in 2007, and 1 percentage point lower than in 2008.

Swimming Against the Tide: How Developing Countries Are Coping with the Global Crisis Paper 2009

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Key Messages The sharp global contraction is affecting both advanced and developing countries. Global industrial production declined by 20 percent in the fourth quarter of 2008, as high income and developing country activity plunged by 23 and 15 percent, respectively. Particularly hard hit have been countries in Eastern Europe and Central Asia and producers of capital goods. Global GDP will decline this year for the first time since World War II, with growth at least 5 percentage points below potential. World trade is on track to register its largest decline in 80 years, with the sharpest losses in East Asia, reflecting a combination of falling volumes, price declines, and currency depreciation.

Financial conditions facing developing countries have deteriorated sharply. The World Bank estimates that developing countries face a financing gap of $270-$700 billion depending on the severity of the economic and financial crisis and the strength and timing of policy responses. Even at the lower end of this range, existing resources of international financial institutions would appear inadequate to meet financing needs this year. Should a more pessimistic outcome occur, unmet financing needs will be enormous.

The financial crisis will have long-term implications for developing countries. Sovereign debt issuance by high-income countries is set to increase dramatically, crowding out many developing country issuers (private and public). Many institutions that have provided financial intermediation for developing country clients have virtually disappeared. Developing countries are likely to face higher spreads, and lower capital flows than over the past 7-8 years, leading to weaker investment and slower growth in the future.

The challenge facing developing countries is how, with fewer resources, to pursue policies that can protect or expand critical expenditures, including on social safety nets, human development and critical infrastructure. This will be especially difficult for LICs: the slowdown in growth will likely deepen the degree of deprivation of the existing poor, since large numbers of people are clustered just above the poverty line and particularly vulnerable to economic volatility and temporary slowdowns. Many of the most affected LICs are heavily dependent on official concessional flows, which will be under pressure in donor countries facing their own fiscal challenges.

There is a therefore a strong need to expand assistance to LICs to protect critical expenditures and prevent an erosion of progress in reducing poverty. Attention must be directed to protecting the poor through targeted social spending, including expanded safety nets, and to maintaining and expanding the infrastructure assets that will be critical to restoring growth following the crisis. A concerted effort is also needed to support the private sector, especially SMEs, which are essential to a resumption of growth and job creation in developing countries. Creation of a global Vulnerability Fund, financed with a modest portion of advanced country stimulus packages, could go a long way to providing the resources necessary for these efforts.

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