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Microfinance Banana Skins: A Different World
Feb 2010, Lascelles, D.
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Identifying risks and challenges facing the microfinance sector

This paper examines findings from the 2009 Banana Skins survey, and identifies issues that deserve further attention from practitioners, investors and officials.

The 2009 Banana Skins survey identifies the main risks facing the microfinance industry as being crisis-related. The crisis had the following effects:

Credit crunch impacted funding markets;
Recession impacted credit quality;
Microfinance industry found it difficult to sustain its reputation for good work;
Institutional risks took second place, except for management quality;
Microfinance was not insulated and needed to fit into a globalized finance industry.

The survey highlighted the similarity between responses from different regions of the world. A positive finding was that microfinance had the resilience to come through the crisis in better shape than the mainstream banking industry. Going forward, MFIs need to go through a period of low/zero growth and lower profitability until they regain their strength. They must understand their risks, and ensure that they have the resources and skills to handle them. To do so, they will need to assimilate and utilize the lessons learnt from the crisis and develop stronger management skills.

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11 Jan 2011




vasant joshi vcj institute for financial services research aznd development India

10 Mar 2010
A different world really

The authors of this year's MF Bananaskins continue to ignore studying the relevance of the Global Financial Crisis for Microfinance institutions in countries with massive poverty challenges. The crisis hit banks and other institutional and individual billionaire investors who followed others in a "pyramid scheme"-like frenzy investing in the USA Subprime housing market. As with the craze of Western experts in 2004 arguing that Basle II threatened MFIs, it was totally made up and with no relation to the MFIs. Today's risks facing MFIs are a continuation of yesteryears' risks, namely their eagerness to welcome billions of US$ worth in soft funding from Western wealthy states, organisations and individuals without a clue on impact and effects. Such external funds may undermine the entire process of building inclusive banking sectors, the allegedly main cause for the "invention" of MF in the first place - "local bankers ignoring the poor!" It ignores the effects on poor clients in trying to deposit, transfer and save more money with sound local financial institutions so that they will manage more money, the final aim of MF being that the poor will be less poor in terms of money assets (instead of debt). And the trend of continued increasing foreign social funding totally ignores that local information, especially on voluntary deposits, savings and transfers from clients with accounts, represents the most reliable information on which sound risk management, liquidity management and product development should be based.

peter van dijk Indonesia

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Publisher(s):
Centre for the Study of Financial Innovation (CSFI)