Center Releases 'Weathering the Storm' White Paper by Daniel Rozas

> Posted by Center Staff
The Center for Financial Inclusion today releases “Weathering the Storm: Hazards, Beacons, and Life Rafts,” which  explores the crisis-management experiences of ten MFIs in Asia, Africa, Europe, and the Americas.
The new white paper, which was written by Daniel Rozas and sponsored by Calmeadow, Deutsche Bank, and Credit Suisse, maps out  the ways in which MFIs most commonly get in trouble and offers a blueprint for sound management and crisis control.
Rozas’ new Microfinance Focus blog series, which is largely based on the white paper,  will examine the many facets of risk in microfinance. As he notes in his introduction to the series, some of the MFIs “were able to execute successful turnarounds, while others failed outright, but in the process they all left behind a set of valuable lessons for the rest of the industry.”
Today’s post, “Part 1: Bring Microfinance into Politics,” begins:
It seems wherever you turn these days, politics is getting into microfinance. In Andhra Pradesh, the state government exercised its prerogative to kill off an entire industry. Next door in Bangladesh, Prime Minister Hasina decided to hound Yunus out of Grameen Bank, no matter the cost. The No Pago (No Pay) movement in Nicaragua counted on the support of the country’s president. What’s the industry to do in the face of such onslaught?

Weathering the Storm
identified state intervention as one of the core risks faced by MFIs. It drew its lessons from the case of PADME in Benin, which was effectively nationalized by the government in 2008. At the time, PADME was in the process of transforming from an NGO to a for-profit entity, and the Benin government had made clear from the start that it was not in favor of such a plan. Despite this, PADME’s management and prospective investors had decided to push ahead, thinking that they would be able to parry the government’s attempts to block the process.

They were wrong. A few months before the transformation was to be consummated, the Benin government ordered the removal of PADME’s management and board, and replaced them with its own people. As cover for its actions, the government cited a trumped-up audit it had commissioned a few months earlier that, among other things, cited the use of fraudulent guarantees for its loans. And what was the evidence to support this charge? – a falsified guaranty document from a single “randomly-selected” client who happened to be the auditor’s sister.
The takeover was a de facto nationalization, and it was done in single day. PADME’s management and future investors were dumbfounded. The sudden action with seemingly no warning took them completely unawares. It shouldn’t have. The signs had been there from the start; the suddenness of the move was simply a reflection of the government’s preferred tactic aimed to minimize PADME’s ability to fight back...

You can read the rest of  Part 1: Bring Microfinance into Politics by clicking on the link, and you can find the study itself here. The in-depth case studies are available here.