Microfinance: One Calf At A Time
Today while reading the repercussions of the Madoff scandal, I received an email informing me that a microfinance (MF) loan that I had made to a person in Central Asia to purchase livestock had been paid back in full and on time. In a week of bad financial news marked by financial greed at the top, it was heartening to realize the integrity of few at the bottom.
As of now the microfinance industry (MFI) seems to be bucking the trend of the global financial crisis. Repayment is still fairly high at 97-98% (according to Women’s World Banking). It seems that the size of MF market is insulating it from a downturn – the MF market is several times smaller than the losses in the current global financial crisis. Another factor protects MFIs as they do not serve the poorest of the poor. MFIs in general are geared towards mobilizing the entrepreneurial poor who are more economically active.
As the crisis develops further, there is an increasing risk that the MFIs may also see a liquidity crunch owing to recession in the US & Europe, increasing default rates and difficulty in raising funds from investors. One trend seems certain though, the growth rate of the MFI will slow from the rapid expansions it has seen due to commercialization & product diversification. Hopefully this will give the industry some breathing space to mature further and come out of this crisis stronger.
In any case, that one email buoyed my spirit and while all may not be well, all is not bad either.
- Akshay
December 25, 2008 at 1:10 am
MFI will continue to thrive and pay on time. Their business model is based on need to survive and not on greed. Your example is a case in point.