> Posted by Kimberly Williams Weinrick and Meghan Gallagher
While the New York spring rain outside was slowing down, inside at the May 7 evening dicussion “Macro to Micro: Performance of Investments in Microfinance in the Current Financial Crisis” there were energetic and insightful attendees from many different backgrounds, professions, and perspectives, adding to the buzz in the room resonating with dynamic conversations.
The evening included a lively and broad-ranging panel that examined the story of how a sector whose chief purpose is to supply small loans to those without collateral or access to traditional financial services is at once maturing and reshaping itself during this time of turmoil. And the panel did not disappoint.
Beginning with an after-work networking reception in Midtown Manhattan, the microfinance program enjoyed a big crowd. Once the panel was introduced, it was clear that the exceptional participants would bring illumination and understanding to this evolving landscape. These panelists were: Roland Dominicé, Executive Director, Symbiotics; Ann Miles, Managing Director, BlueOrchard Finance, S.A.; Camilla Nestor, Director, Grameen Foundation; Susanna K. Tisa, Managing Director, FINCA International; and Mitchell Strauss, Special Advisor SME Finance & Director of Credit Policy, Overseas Private Investment Corporation (OPIC).
The insightful discussions focused on how microfinance institutions (MFIs), investors in this asset class, including the U.S. government, are coping with the challenges affecting the industry which include current global macroeconomic conditions and the ongoing financial markets crisis. The severity of these global impacts on an MFI’s portfolio quality and growth, earnings, as well as risk exposures could vary dramatically by institution. One has to examine a country and/or regional market’s economic and financial characteristics and how these factors combine with the individual MFI’s strategies, structures [deposit taking or not], operating policies and capital profiles to determine the outcome of the impacts. For example, in some countries MFIs experienced negative portfolio growth in the first quarter of 2009, whereas in North and Sub-Sahara Africa, MFIs were more resilient to the economic and financial shocks, resulting in continued portfolio growth. “With regard to growth,” said Roland Dominice, “we used to be at 50–60 percent per annum; now we are at 20–30 percent….But continued growth allows us to address the needs of more people [who need access to financial services].”
In general, across all MFIs portfolio quality had not deteriorated materially. Profitability was weakened but is also still holding-up, “MFIs have seen some impact on profitability [due to the economy],” said Camilla Nestor, “although most MFIs which were profitable are still profitable.”
Panelists also agreed that many MFIs’ borrowings are exposed to foreign hard-currency dislocations (depreciation in their country’s currency) which makes their servicing of the foreign currency debt more expensive and contributes to a weakening of profitability. In fact, it was said that all MFI markets (except Bolivia) saw depreciation in their local currencies as compared with the U.S. dollar or the euro—a concern that all on the panel deemed as a priority for future consideration in loan execution.
Questions ranged from how credit rating agencies rate MFIs to views on MFI consolidations in varying regions or by MFI tiers—a thought that generated a lot of discussion. “I think we’ll start to hear more about the consolidation [of MFIs],” said Ann Miles. “We’re going to see more MFIs disappear at the smaller level.”
The Financial Women’s Association and the Microfinance Club of New York co-sponsored this event, which was moderated by Andrea M. Esposito, Managing Director, Standard & Poor’s, New York. The groups extended special thanks to The McGraw-Hill Companies for hosting this important event.
Kimberly Williams Weinrick and Meghan Gallagher contributed this article on behalf of the Financial Women’s Association.