Center for Financial Inclusion, Jan 7, 2021
In 2010, when the world was going through the largest economic crisis in three generations, the microfinance sector found – in most cases for the first time – that it’s not immune. The sector’s many stakeholders, very few of whom had previously experienced a major crisis, had to learn on the fly. Seeing this knowledge gap – and also recognizing an opportunity – CFI launched Weathering the Storm, a first-of-a-kind research project to capture the experience of MFIs dealing with crisis.
With the onset of COVID-19 came a scramble for direction on how to respond, and, amid the hubbub, the first Weathering the Storm made the rounds on social media as one of the reference materials for this new crisis. Many of its lessons — admonition to MFIs to “keep leverage low and liquidity high,” focus on prioritizing client and staff confidence, emphasis on maintaining transparency with creditors — proved as true in April 2020 as they did a decade ago. Indeed, its discussion of creditor responsibilities helped inform the rapid and well-organized response by social investors.
Even so, it wasn’t a perfect fit. Much of the original Weathering the Storm focused on institutions whose crises were due more to internal mismanagement than to external threats — a situation that is largely reversed today. And most of that study focused on avoiding a crisis rather than surviving one – hardly appropriate advice to institutions facing a pandemic. Recognizing these differences, CFI — this time in partnership with e-MFP — launched Weathering the Storm II to seek out cases that are more relevant to today’s situation.
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covid-finclusion, Apr 28, 2020
Liquidity has been foremost on the minds of just about everyone in the financial inclusion sector. Several essays on this site have delved into the topic. The first article in our liquidity series outlined three drivers for illiquidity: deposit withdrawals, operating costs, and maturing debt, and argues that maturing debt presents the greatest risk. But what does the data say? Here we will dig into that, and investigate just how severe the different elements of the liquidity crunch are to different categories of MFI around the world.
We don’t have access to sector-wide data reflecting the situation right now. Nobody does. But we can get a good view of what may be happening from historical data collected by MIX Market over many years. Let’s start with the most basic question. Assume an MFI is operating under complete shutdown, with no repayments, no new disbursements, and no other inflow or outflow of funds – it’s operating entirely from cash reserves. How many months would it be able to survive before the money runs out?
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covid-finclusion, Apr 20, 2020
In our first piece in this series – Keeping the Patient Alive – Adapting Crisis Rubrics for a Covid World, we introduced the analogy of the emergency room doctors trying to treat a critically ill patient – a financial services provider (FSP), its staff and clients in lockdown or socially distancing, unable to travel and with incomes collapsing, health expenditures increasing, and some sick or dying. Repayments are close to impossible, and new loan applications are flat. But operational expenses continue, and it’s a race against the clock.
In short, this patient is critical. To continue the analogy, ensuring the reciprocal trust and confidence of staff and clients and investors is like treating a patient’s organs, with interventions from pharmacology to surgery to transplant. We’ll get to that, though. For now, the challenges need triage. The patient can’t breathe, so she cannot oxygenate and circulate her blood. This, to come back to our institution, is the critical need for liquidity.
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covid-finclusion, Apr 14, 2020
In 2010, the Centre for Financial Inclusion (CFI) published a paper by Daniel Rozas called Weathering the Storm, reviewing 10 MFIs that faced existential crisis, some having survived and others not. The paper was written in the aftermath of the 2007-08 global financial crisis and its subsequent ripples across many microfinance markets.
Today the sector is facing a crisis both broader and deeper than anything that’s come before. It is not alarmist to say that the threat – to clients, their business, financial service providers and the whole ecosystem that supports them – is existential.
In recent weeks, there has been a cacophony of responses as different stakeholders try to get a grip on what’s happening and what comes next. We’re mindful not to add to the noise without adding value. The value, we think, is in extracting just the applicable lessons from previous crises, matching them to the complex array of challenges being faced today, and doing so within the framework of an illustrated guide that takes that CFI paper as its starting point. So to this end, the European Microfinance Platform (e-MFP), CFI and the Social Performance Task Force (SPTF) are launching a collaborative blog series that will try to help practitioners, investors and other stakeholders weather this storm.
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