Microfinance and the Economic Crisis: What to Believe?
Microfinance institutions (MFIs) are going to be badly hurt by the global financial crisis. Or will they? Reports and opinions differ widely.
Some argue that the financial crisis has hampered small-scale lending.
One reason is that the value of local currencies are fluctuating too much, relative to more stable currencies like the U.S. dollar or Euro. Because of this, many MFIs are having to either seek new loans or convert existing loans into these "hard currencies." Over the course of these loans, many local currencies continue to devalue — leaving MFIs on the hook to make up the difference.
On top of this, interest rates on loans that MFIs need to fund their operations have increased. Survey findings reveal that 41 percent of MFIs are now taking loans at higher interest rates than before the economic crisis. Financial columnist Sarah Bauerle cites this as one of the crisis' "deleterious effects" on the microfinance industry.
Then there's the issue of available funds.
Roy Jacobowitz, managing director at the microfinance nonprofit ACCION International, says "a liquidity crisis is the very worst-case scenario for microfinance institutions."
Others say the credit crunch could actually be a good thing for MFIs, while some add that the funding spigot is still on.
"There is evidence that microfinance is resilient to global market movements, compared to traditional lending, as it falls outside of the mainstream economy. And there does still seem to be equity available for microfinance," says Mary Ellen Iskenderian, CEO of Women's World Banking.
Iskenderian cites India as an example, though it's worth noting that India is weathering the economic crisis incredibly well.
Investors are still banking on microfinance. The privately owned Oikocredit increased microfinance investment by 32 percent in 2008.
Muhammad Yunus, who pioneered microfinance in Bangladesh and won a Nobel Peace Prize for his efforts, remains optimistic. He said in October that he sees "good news in the middle of all these bad news: microfinance still works."
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economy crisis
Then there's the issue of available funds.
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