Remittances and microfinance

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CGAP has just released a new report on The Global Financial Crisis and Its Impact on Microfinance, and the picture is looking mixed for microfinance over the next few years. Microfinance institutions (MFIs) that rely on commercial funding are facing a refinancing threat, exacerbated by possible currency mismatches. However, international donors look likely to fill a large part of the gap if the issue is one of liquidity. I think the more difficult question is what to do about MFIs that face an insolvency problem, a possibility in the light of trends in remittance flows.


According to the CGAP report, "remittance inflows in U.S. dollars are expected to decrease in five of the six developing regions during 2009-10, with sharp declines compared with recent years." While this hasn't yet translated into a significant increase in defaults, that prospect looks like a real possibility for countries that rely heavily on remittances. I wonder if in six months or a year we will be asking (1) whether, in addition to banks, certain MFIs deserve a bailout, and (2) how best to structure these bailouts to preserve private ownership?

Update: My World Bank colleague Prianka Nandy points me to a useful post on the People Move blog that provides further details on the World Bank estimates for remittance flows


Ryan Hahn

Operations Officer

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