The Centre for Financial Inclusion, a division of US-based nonprofit ACCION International, recently released an overview of lessons that can be taken from the Nicaraguan microfinance downturn. Triggered by a combination of the global economic downturn and the “No Pago” (No Payment) Movement, which was encouraged by the Nicaraguan government, the result was a reduction in the aggregate microloan portfolio from USD 420 million in 2008 to USD 170 million in 2011, a fall in the number of clients served from 324,000 to 225,000 and estimated portfolio at risk rising to 19 percent [1].
The Centre for Financial Inclusion posting argues that lessons learned include the need for better regulation in the microfinance and cooperative sector to ensure adequate reserves; political propaganda can override law; and other factors contributed to the turmoil such as weak governance, poor credit methodologies and overly rapid expansion in the microfinance sector.
The Centre also reiterated its “6-Point Action Agenda to Recalibrate Microfinance” that it released in December 2010 in light of the trouble in Andhra Pradesh [2]. The agenda calls for the microfinance industry to address issues relating to client protection, governance, debt stress, offering savings in addition to credit to clients, inclusion of microlending in credit bureaus and the creation of “fair-trade microfinance”.
By Medha Ravi, Research Associate
About Centre for Financial Inclusion:
Centre for Financial Inclusion is a division of US-based nonprofit ACCION International, which was established in 1961. The centre works with microfinance experts, regulators, banks, investors and academics to address the issue of financial inclusion. The centre aims to connect the microfinance community to capital markets and technology.
Source and Resources:
[1] Centre for Financial Inclusion Blog, “Nicaragua’s Microfinance Crisis: Looking Back, What Did We Learn?”, http://centerforfinancialinclusionblog.wordpress.com/2011/01/24/nicaraguas-microfinance-crisis-looking-back-what-did-we-learn/
[2] Centre for Financial Inclusion Blog, “A 6-Point Action Agenda to Recalibrate Microfinance”, http://centerforfinancialinclusionblog.wordpress.com/2010/12/22/a-6-point-action-agenda-to-recalibrate-microfinance/
MicroCapital.org story, November 9, 2010, ” MICROCAPITAL BRIEF: Vice President of the Economic Commission of Nicaragua Urges the Passing of a Microfinance Law in Wake of “No Pago” Movement, Liquidation of Microfinance Institution Banco del Exito’s (Banex)”, https://www.microcapital.org/microcapital-brief-vice-president-of-the-economic-commission-of-nicaragua-urges-the-passing-of-a-microfinance-law-in-wake-of-no-pago-movement-liquidation-of-microfinance-institution-banco-del-ex/
MicroCapital’s Microfinance Universe Profile: Centre for Financial Inclusion, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Centre+for+Financial+Inclusion
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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