by Alvaro Ruiz-Navajas
Much has been said about the resilience of the microfinance sector during the crisis on account of well known companies like Mexico’s Banco Compartamos, whose share price gained 170% in 2009. However, the environment in which microfinance institutions (MFIs) operated during the financial crisis was among the most challenging ever faced by the industry. In early 2009, loans past due over 30 days reached a median of 4.7%, up from 2.2% at the end of 2008 and profitability dropped dramatically.
However, a closer examination shows that these effects were not as extreme as it may appear. First, most of this decline in asset quality took place in the first half of the year. It is interesting to note that most of it was short-term delinquency, with only a minority of loans in need of rescheduling. Rescheduling loans is a very important tool for microfinance institutions, as they have been known to use it without undermining the repayment incentive for their borrowers.
Also, these effects have not been uniform. Countries like Bolivia and India stood their ground firmly, while others, like Nicaragua and Morocco, experienced severe delinquencies, which were not necessarily caused by the crisis. These differences can be explained by the fact that countries like Bolivia and India have much more competitive markets that have led to faster product innovation and client screening methodologies.
So, while the microfinance industry experienced a tumultuous year in 2009, it came out relatively unscathed, and its drive to keep on improving the quality of its assets gives us an upbeat outlook on the sector.
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