MICROCAPITAL STORY: Microfinance Insights Reports Over 80% of Investors Haven't Reduced Microfinance Investment Portfolio Due to Global Recession

In its latest issue Microfinance Insights explores how industry stakeholders have been affected by the global liquidity crisis. While microloan clients have been squeezed by the crisis and MFIs have struggled to work with less liquidity, equity investors continue to show interest in investing in large microfinance institutions, confident they will weather the crisis. In this issue the magazine surveys 120 MFIs and 40 investors from around the world.

According to the survey over 25 percent of non-deposit taking MFI’s have decreased lending in the last 12 months and 20 percent have reduced their staff size. 41 percent of MFIs surveyed have faced higher interest rates from lenders and 37 percent have scaled back their growth plans. Despite these numbers, 80 percent of equity investors have not reduced their portfolio allocation to MFIs.

Microfinance clients are getting hit from multiple directions by higher food and energy prices, fewer remittances, and declining availability of loans. Microfinance organizations, especially those unable to take deposits, have not escaped unscathed. Cambodia Microfinance Association (CMA) recently forecast loan growth slowing to 10 to 20 percent per year from 61 percent, and as a result fewer employment opportunities in the microfinance sector. Fitch Ratings, a global rating agency, has issued two reports in the last 12 months concerning the microfinance sector’s resilience to the global financial crisis. In both reports, which were covered by MicroCapital, Fitch expected the crisis to have a negative impact on microfinance institutions and their financial performance but expected resilience to the crisis to be positively correlated with the size and integration of an MFI.

Equity investors aren’t alone in their optimistic outlook for microfinance. Multilateral organizations such as the World Bank Group, an international organization dedicated to economic development, continue to have confidence in the microfinance sector as a strong asset class too. As reported by MicroCapital in February, the World Bank Group and the German government have provided a USD 600 million fund to help microfinance institutions deal with the declining liquidity. The fund will be managed by three companies that specialize in microfinance investment: Blue Orchard, responsAbility, and Cyrano Management.