By George Scott
It's sadly the way that the poorest in the world are often the most adversely affected by political and economic turmoil. It has been predicted that of direct consequence to the financial crisis, 90 million more people will be pushed into poverty by 2011, their daily income falling below $1.25 dollars a day. in the perhaps the time that it's customers need it the most, how is the microcredit industry being affected by this crisis and how will it affect the service that it is able to provide to it's customers?
The global MF industry
The Microfinance industry has proved resilient to economic downturns of the past and experts are confident that it will be able to weather this one. However, in recent years a huge amount of investment has come from commercial sources bringing with it increased exposure to fluctuations of the financial markets. In short, the MF industry of today isn’t the same as that of three years ago.
Unlike the sub-prime mortgages, microcredit loans are a much more measurable quantity, when you make a loan to a family you know the families income, their expenditures so their ability to repay the loan is fairly easy to quantify, this isn't the problem. The problem lies in microcredit organizations that aren’t deposit taking institutions, and/or, those who rely on substantial external funding, which usually takes the form of complicated debt instruments, increasing exposure to interest rate risk and financial market turbulence. Also where investment was abundant two years ago, that isn't the case today.
Further problems have come about due to Inflation, caused by rising fuel and raw material prices as well as growth of bio-fuels, which has contributed to rising food prices. The effect on market food prices is still a worrying issue for many families in the developing world. This means that microcredit customers may face a choice between repaying their loan and putting food on their table for their families. If I was forced to make that choice, I think I know where my decision would lie.
The Chinese MF industry?
The global financial crisis has led to job losses in the manufacturing and construction industries in China, the Perl River Delta, being particually affected. So far over 20,000,000 workers across China have lost their jobs, many of whom have little choice but to return home to their villages. In response to this the government has taken strong steps promoting microfinance and lending to SME’s as a means to mitigate the effect of these huge job losses: Increasing the credit limit for the fist time and relaxing regulation on private lending, making more funding available to SME’s. In effect freeing up a vast source of government funding and channeling it towards rural areas.
Wokai's Field Partners?
Having spoken with our field partners, they are most concerned that these developments will lead to increased and tougher competition for them, as organizations take advantage of this welcoming environment and establish new microfinance instiutions. However, at the same time they hope that they will be able to use this challenge to the benefit of their customer; providing a more complete service, better loan products, in all serving their clientele more completely and attracting new customers.