Microfinance Banana Skins 2009 Microfinance Banana Skins 2009 - Le ...

C S F I / New York CSFIearlier view that MF borrowers had a good repayment record; respondents blamedthe growth of competition and the erosion of lending standards for encouragingpeople to borrow beyond their ability to repay.Sharp rise in creditand funding riskThe credit crunch has also raised concerns about the liquidity of MFIs (up from No.20 to No. 2) and the prospects for refinancing funding commitments (up from No.28 to No. 5). The fact that much funding arrives in non-local currency has also givena sharp boost to foreign currency risk (up from No. 12 to No. 8) owing to volatilityin the foreign exchange markets. All these concerns are summed up in the rise ofprofitability as a risk from No. 22 to No. 12.There is also concern that recession will expose “naked swimmers”: weak MFIs withpoor funding and inefficient management who were being buoyed by good economicconditions and overabundant funding. The risk of institutional failure is seen to behigh.Many respondents saw a vicious circle here: the recession creating a worse businessenvironment, leading to mounting delinquencies and shrinking markets, leading todeclining profitability, leading to loss of investor confidence, leading to cutbacks infunding, and so on. One consolation for hard-pressed MFIs is that the pressure ofcompetition, which was the top risk for some in 2008, has eased (down from No. 7to No. 9). Another is that the risk of losing depositor confidence (No. 21) was notconsidered high.Microfinancereputation couldcome under attackFall-out from the recession may also create other risks, notably of politicalinterference (No. 10) as governments try to ease the pain of recession by settingconditions for lending and even condoning non-repayment of loans. Linked to this isconcern that MFIs will be swept up in a global regulatory backlash against bankswhich could lead to ill-designed measures and inappropriate regulation (No. 13).A further recession-led concern is for the reputation (No. 17) of the industry ifMFIs are unable to sustain their flow of lending or are forced to become tougherabout loan re-payment. Any hardening of the MFIs’ position would add to concernsabout mission drift (No. 19) and the perception that MFIs are abandoning theirsocial objectives. Linked to this is the risk that investors in MF and users of theservice have unrealisable expectations (No. 18) about what MF can deliver.A breakdown of responses by type shows MF practitioners deeply concerned aboutthe impact of the crisis on loan quality and funding, while investors focused more onCSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk 7