With remittances dropping, commodity prices remaining high, unemployment rising everywhere and credit drying up, how does microfinance fare? The MFIs? The borrowers?
The general consensus seems to be that microfinance has withstood the financial crisis better than most financial institutions. Muhammad Yunus, characteristically thinks that microfinance is doing fine and that the crisis is a real opportunity to restructure financial access. Love that guy’s optimism.
Still, MFIs have been hit. Foreign exchange risk poses a real problem in that managers have to worry about repaying higher interest rates to international lenders (from whom they get most of their money) with their local currency, which has decreased in value. CGAP reports that one Latin MFI reported a loss of 75 percent of net income in a single year from foreign exchange losses. MFIs always have to bear the risk of currency fluctuations, but these fluctuations combined with decreased liquidity from international sources has led to unpredictability on a new scale. I’m left wondering what the long term effects on their clients will be.
In a recent survey by CGAP, 65% of MFIs responded that their loan portfolios are either flat or have decreased in the last 6 months, this must result in fewer hires and perhaps decreased services or increased interest rates in an attempt to pass cost along to their clients.
Clients who are already suffering the effects of the global crisis. For the poor, small changes in their portfolio can result in painful shortages, particularly as food costs remain high. These problems are likely to be exacerbated by a dramatic drop in remittances, which the World Bank estimates will drop by 7-10 percent in 2009. This will surely affect ability to cover day-to-day expenses as well as their ability to repay existing or future loans. However, despite this belt-tightening, many micro businesses are highly resilient and run operations that can quickly change shape and function. As a Kiva Fellow in Bolivia I met one woman who owned a sewing machine and normally made traditional skirts for sale out of her home. When I visited her, I was surprised to see her out front making candles. When asked about her sewing business she told me flatly that there is a crisis (am I an idiot who didn’t realize?) and people aren’t buying clothes. But, everyone still goes to church where they’ll buy candles, and with increased electrical costs, she thinks more people will use candles for light. After a quick analysis of her sales, she completely closed shop and reopened an unrelated business in less than 2 days. We are unlikely to see this degree of flexibility from larger businesses.
Seems that some lessons can be drawn from the microfinance sector. Both for businesses that should learn to be somewhat more flexible, and to financial institutions who may wish to do what most MFI’s have sought from the beginning- to provide personal services to the benefit of their customers rather than the bottom line.
For those interested in more information about the credit crisis and microfinance, CGAP issued a helpful report in May: http://www.cgap.org/p/site/c/template.rc/1.9.34453/
*By Sierra Visher
June 16, 2009
It’s been five days since I landed in Zambia and in that time I’ve seen some of the richest and poorest in the country, come to understand a little bit of what skin color means to native Africans, and thankfully not been attacked by a hippo…or a crocodile.
I arrived in Lusaka, the capital, on June 11 and immediately began a two-day training workshop with FORGE staff based there. I also got to meet nine refugee students that FORGE is sponsoring at the national university in Lusaka. They are all incredibly intelligent and most have plans to return to their native countries to open businesses, rebuild the government, or start advocacy groups.
The day after arriving, I traveled with FORGE staff and another volunteer to a resort town in the south of Zambia called Siavonga. It’s on the shores of Lake Kariba which was formed when the Zambezi was damned in 1960 to create a large hydro-electric power plant (displacing hundreds of people and multiple herds of wild game in the process). The lake spans the border of Zambia and Zimbabwe and power is generated on both sides of the dam, but most of the power created in Zambia is sold directly to Zimbabwe.
We were in Siavonga because the Zambian National Wildlife Society was holding a canoe race (which was much longer than originally advertised as a hippo had claimed a large chunk of territory between two of the resorts) to raise money, and FORGE was participating – my boat came in last unfortunately, but it meant we appeared on Zambian national television. The entire weekend was sponsored by many of the local hotels and businesses around Lake Kariba and the race itself was a type of scavenger hunt between six of the resorts. Most of the business in Siavonga is owned, operated, and frequented by white Zambians, and while most of those we met were friendly, there were definitely a few throwbacks of colonialism.
Regardless of skin color, it became very apparent that Zambian culture revolves around alcohol. We traveled to Siavonga on a bus sponsored by the event with members of the media, event organizers, and other “paddlers.” As soon as we pulled out of the station in Lusaka, the media people began drinking and what should have been a three hour journey became five with the multiple stops required to restock on beer or whiskey, or just run into the bushes. Thankfully, we met a nice Namibian in Siavonga who offered us a ride back to Lusaka at the end of the weekend. The ride back was much more enjoyable with a few stops to take pictures of the Kafue river and ancient baobab trees, and upon arriving in Lusaka our friend invited us to join him at a rugby match where we got to see the Zimbabwean national team beat a provincial team from South Africa at sevens.
The next day found us back on a bus bound for Solwezi, a small town in the north situated near the western edge of the copperbelt, and also the nearest town to the Meheba Refugee Settlement where I now call home. The journey took the entire day and passed through most of industrial Zambia, and the majority of copper mines in the country. The economic differences between some of the smaller outposts along the route and Siavonga was stark, but everywhere people were operating small businesses or farming so there seemed to be hope. Once we arrived in Solwezi and had found our luggage, including a few new solar panels for a computer literacy program in the settlement, we loaded up the truck and drove the final two hours to Meheba.
The road from Solwezi to Meheba leads into the bush and as we left the city center we passed through what can only be called a shanty-town as many natives of Solwezi are no longer able to afford decent housing in town thanks to the new copper mines which have increased prices. Further out we passed through a few villages until all that remained was an empty stretch of road that lead to the settlement. After a short chat with a drunken guard at the gate, and a VERY bumpy ride into the heart of the camp, we were home.