Get ready for the next victim of the global credit crunch - microfinance. (Pascal Lamy's warning yesterday about a squeeze on trade finance is already old news in the quickly moving financial crisis.) For-profit microfinance institutions will find it harder and harder to find financing. MFIs will have to rely more heavily on donor support to continue their operations. It will be interesting to see how the contentious issue of commercialization plays out during the squeeze. And to top it all off, MFIs will have to decide whether to ration scare capital to fewer borrowers or charge higher rates (or some combination of both).
To find out more about how MFIs will deal with the credit crunch, there's no better place to turn than CGAP. They are putting on a three-day virtual conference November 18-20. I definitely plan on catching at least part of this conference. Questions to be considered include:
- What will be the main funding options for MFIs in the mid-term? Who will be the lenders of last resort for MFIs?
- What markets and types of institutions do investors consider the most risky? What are the characteristics of these markets and types of institutions? Has the revision of risk affected pricing?
- Is the crisis affecting some types of funders more than others? How have private, commercial funders reacted?
In the meantime, it might be worthwhile to take a look at the Economist Intelligence Unit's recently released 2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean. The report ranks some 20 countries in Latin America and the Caribbean on 13 criteria based on each country's regulatory framework, investment climate, and institutional development. At the bottom of the list for investment climate? Honduras, Ecuador, and Haiti.
The Economist Intelligence Unit report also provides a country-level comparison of the microfinance premium - the difference between what mainstream banks and MFIs charge. How these premiums will look in a year is anyone's guess - it depends largely on whether access to finance continues to be a priority of the international financial institutions in the wake of the financial crisis.
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