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C S F I / New York CSFISponsors’ forewordLook back to the first edition of the Microfinance Banana Skins Report, “Risk in a booming industry” published inearly 2008, and you’ll see how perceptions of risk have changed.At the time of the first report, microfinance institutions (MFIs) were growing at double-digit rates in many countries;new equity and debt funds were being launched, and a wider spectrum of private sector investors was emerging. Thereport showed an industry that was mostly concerned with internal risks, and focused on capacity building to supportrapid expansion.Eighteen months later the global and industry landscape has changed dramatically. Microfinance is being challenged bythe impact of an unprecedented global economic and financial markets crisis. Liquidity has tightened and credit spreadshave widened for MFIs. Currency dislocations and the global recession are affecting MFIs and their clients. MFIclients’ household cash flows have been squeezed by inflation, especially arising from dramatic food and fuel priceincreases, and, for the first time in many countries, by reduced remittance inflows.There are strong country and regional differences in how MFIs are being impacted by changing market forces. But ingeneral, whether out of prudence or pressure, MFIs have significantly slowed their pace of growth. Particularly in moreglobally integrated economies where MFIs were more reliant on international sources of funding and access to capitalmarkets, funding and liquidity have become widely identified as key risks, while savings-based MFIs appear moreresilient.Despite the severity of these challenges, MFIs have shown comparative robustness in their capacity to weather thefinancial crisis. Public investors, multilateral and bilateral donors and lenders, as well as global microfinance networks,have stepped in and are providing emergency liquidity to some MFIs. Large new financing facilities are helping tomaintain a degree of stability and confidence in the sector. MFI managers are going back to fundamentals; tighteningcredit policies and procedures, diversifying funding sources, raising capital, hedging currency mismatches, andfocusing more on human resources and training. Network leaders and investors are pushing for higher governancestandards, improved transparency and better risk management. Finally, the sector is beginning to experience someconsolidation and MFI mergers, with new holding company and diversified ownership structures emerging.The 2009 Microfinance Banana Skins Report presents the findings of a global industry survey on the risks affecting thegrowth and viability of microfinance institutions. And it reflects their progress toward financial sustainability, andgreater outreach and inclusion. While by no means exhaustive, the 25 risks identified provide an illuminating snapshotof the microfinance industry today.We are grateful for the 430 participants from 82 countries who contributed to this survey. We would like to thankDavid Lascelles and Sam Mendelson for distilling participant feedback and presenting it in such a cogent manner. Alsoour thanks to Deborah Drake at the Council of Microfinance Equity Funds for her efforts to expand the range ofrespondents and for guiding the work of the Steering Committee. Philip Brown at Citi Microfinance and Xavier Reilleat CGAP represented our institutions on the Committee for both reports. Finally, we are appreciative for all of the inputprovided by the MIX.We hope that this report will contribute to the ongoing debate on the issues confronting the future evolution of themicrofinance sector, and its capacity to realise the goal of financial inclusion.Bob AnnibaleCiti MicrofinanceElizabeth LittlefieldCGAP2 CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk
C S F I / New York CSFIMicrofinance Banana Skins 2009 describes the risks facing the microfinance industry as seen by an international sampleof practitioners, investors, regulators and observers of the microfinance sector. It updates a previous survey carried out inearly 2008. This survey was conducted in April and May 2009 and is based on 430 responses from 82 countries andmultinational institutions.The questionnaire and accompanying guidance (reproduced in the Appendix) was in three parts. In the first, respondentswere asked to describe, in their own words, their main concerns about the microfinance sector over the next 2-3 years. Inthe second, they were asked to rate a list of potential risks – or Banana Skins – both by severity and whether they wererising, steady or falling. In the third, they were asked to rate the preparedness of microfinance institutions to handle therisks they identified. Replies were confidential, but respondents could choose to be named.The views expressed in this survey are those of the respondents and do not necessarily reflect those of the CSFI or itssponsors.The breakdown by type of respondent was as follows:Observers38%Practitioners35%Regulators7%Investors20%Just over half (57 per cent) of the practitioners represented deposit-taking institutions. The “observers” category includedanalysts, aid officials, academics, accountants, lawyers, consultants etc.The distribution of responses by region was as follows:Middle East3%Africa13%Far East7%Asia15%C & E Europe7%N America20%W Europe24%Latin America11%CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk 3
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