MICROFINANCE PAPER WRAP-UP: “Microfinance Clients Facing the COVID-19 Crisis: From Findings to Action for MFIs;” by Mathilde Bauwin, Thu Hien Dao; Published by ADA

This paper explores the impact of the COVID-19 pandemic on clients of microfinance institutions (MFIs) in terms of: “Which client segments are most affected? How are they coping with the situation? What are they doing to adapt to the crisis? What are the solutions that MFIs could provide to better support them?”

Surveys conducted in Bhutan, Cape Verde, El Salvador, Myanmar, Rwanda, Senegal and Togo indicate that “most” MFI clients experienced worsening “household financial situations,” especially “during periods of severe restriction and…in urban areas.” MFI clients reacted by using personal savings; skipping loan repayments; borrowing from family and friends, consuming fewer meals per day, and switching to less nutritious foods. Additionally, a “few engaged in risky long-term coping strategies such as selling assets.”

In all countries, most employed individuals reported income stability, whereas the self-employed were more severely impacted. Eighty percent of respondents working in retail and services experienced income declines. In Bhutan, the decline in incomes was less than in other countries, with half of respondents reporting no change in income – likely because 84 percent work in agriculture and live in rural areas. In Togo, MFI clients were less affected by the pandemic than their counterparts elsewhere in Africa. In contrast, respondents reported the highest income decreases in Cape Verde, Senegal and Rwanda. Among the populations reporting the worst effects was women active in the trade sector in Senegal.

Since the onset of the pandemic, MFI clients in Bhutan, Cape Verde, El Salvador and Myanmar have consumed less food and food with lower nutritional value due to reduced household income. This coping strategy was most common in Cape Verde, where approximately 60 percent of respondents took this step. The country with the most people reporting an increase in hunger during the pandemic was Rwanda – likely because the agriculture sector there was affected simultaneously by inclement weather. Cape Verde was the only country where food consumption decreased more for men than women. Bhutan was the only country where food insecurity was greater in urban areas.

In response to the pandemic, MFIs took steps such as restructuring loan repayment schedules, offering larger loans, removing the requirement to pledge savings in order to qualify for loans, and distributing food packs and health kits. Among these options, MFI clients generally expressed greater need for additional liquidity than for relaxed repayment schedules. Looking ahead, several MFIs plan to develop savings offerings to bolster “clients’ resilience to economic shock” in the future. In a few countries, survey data were “shared with regulators to create dialogue on policy,” potentially increasing support for the microfinance sector. Meanwhile, since the beginning of the pandemic, MFIs became more aware of the importance of regularly delivering information to and receiving feedback from their clients.

This is a summary of a paper by Mathilde Bauwin and Thu Hien Dao, published by ADA (Appui au Developpement Autonome), July 2021, 21 pages, available at https://www.findevgateway.org/paper/2021/07/microfinance-clients-facing-covid-19-crisis-findings-action-mfis

By Harriet Ritchie, Research Associate

Sources and Additional Resources

ADA homepage
https://www.ada-microfinance.org/

ADA Research & Development Unit webpage
https://www.ada-microfinance.org/en/our-resources/research-and-development-rd

FINCA (Foundation for International Community Assistance) homepage
https://finca.org/

Social Performance Task Force homepage
https://sptf.info/

60 Decibels homepage
https://60decibels.com/

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