> Posted by Elisabeth Rhyne
I’m blogging today from the annual meeting of the ACCION Network taking place in Buenos Aires, hosted by Columbia Microcredito of Banco Columbia. We spent a very interesting morning talking about the effect of the financial crisis on microfinance institutions and their clients in Latin America. We’ve heard from Michel Burbano of Banco Solidario in Ecuador, Carlos Viteri of Financiera Apoyo Integral in El Salvador and Kurt Koenigsgfest of BancoSol in Bolivia. Some of the points that really hit me this morning are:
- The severity of the crisis differs by country. It is hitting El Salvador much harder than Bolivia because El Salvador is more integrated into the US economy. What for MFIs in Bolivia is so far a somewhat challenging time is for MFIs in El Salvador a very serious situation.
- The crisis is still unfolding, but these MFIs have had time to think about how to respond and are already implementing their responses. Their most important message is: stick to your knitting. Do what you do best. The biggest concern is the rise of delinquency as clients’ businesses suffer. The MFIs are responding in many ways. The most important is focusing on their credit methodology, especially assessing client ability and willingness to repay.
- Some adjustments are necessary, including changing staff incentives. When general delinquency rises, it becomes de-motivating to staff if the same standards are used for incentives as in good times. BancoSol is investing in intensive staff training to help staff understand how to operate in the new situation.
- The other big concern, of course, is funding. Among the members of the ACCION Network, this is not (yet) an emergency, but funders are definitely looking more carefully – and they have less money to lend. Victor Telleria of FAMA pointed out that when funders evaluate MFIs today they cannot use the same benchmarks they use in normal times. When all institutions are under stress, it is important for investors to distinguish between those who are handling the stress well and those at risk of failing. This is a topic for exploration during the coming Council of Microfinance Equity Funds meeting on May 18.
Stepping back, it struck me that while we’ve understood the special positioning of the microfinance sector during this time of financial crisis, microfinance can actually be a real part of the solution to the downturn. Microfinance institutions have a great responsibility to assist their clients to survive the downturn – including new clients driven into the informal sector by the crisis. Moreover, MFIs may be, on average, in better shape than many mainstream financial institutions to keep on working. Because MFIs now serve so many people around the world, their role as a solution could turn out to be important.