impact_and_implications_of_food_crisis_on_microfinance

8/7/2019 Impact_and_Implications_of_Food_Crisis_on_Microfinance

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Impact and Implications of the

Food Crisis on Microfinance

Eric Duflos and Barbara Ghwiler, CGAP


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Madagascar

Egypt

Bangladesh

Nepal

Senegal

Ethiopia

Peru

MoroccoPakistan

Vietnam

Cambodia

Indonesia

Philippines

Kenya

Haiti

Malawi

Interviews

Survey

Zambia

Tanzania

Niger

Cameroon

Bolivia

CGAP Survey of 45 Leading MFIs


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In August 2008:

Price increases, of varying intensities, were felt in all thecountries surveyed (e.g., Haiti and Niger highly affected)

High food prices along with high fuel prices put a double

burden on poor people

Large landowners profited; small farmers did not

Managers felt that the worst was yet to come becausefarmers couldnt afford seed and fertilizer

More people migrated in search of food and jobs

Overall Remarks


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Impacts on MFI Clients

1 2 3 4 5

Rating Average on a scale from 1 to 5

Doesnt applyto our clients

Applies to amajority of our

clients

Clients consume less food

Clients cut back on nonfood expenses

(e.g., health expenses)Small businesses are less/not profitable

Small businesses face lower demand

Clients use savings to buy food

Increase in malnutrition among clients

Clients are forced to sell assets to buy food


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0

5

10

15

20

25

56.8% 43.2% 35.1% 27.0% 13.5%

Our PAR (portfolio at

risk) has increased

as a consequence of

the crisis

Our loan portfolio has

not been affected by

the crisis

The default rate has

increased

Our loan portfolio has

decreased as a

consequence of the

crisis

The share of very

poor clients in the

portfolio has

decreased

Impacts on MFI Loan Portfolios


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Other Impacts on MFIs

Most frequently reported impacts:

1. Increased operating costs (> 70% of respondents)

We had to increase our salaries more than planned.Alexandria Business Association, Egypt

2. Its harder to collect savings (>50%)

3. We cannot reach our goals (e.g., expansion,diversification) (>40%)

4. We face liquidity problems (>25%)

Only 3 out of 45 MFIs say their organization

has not been affected by the crisis


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Measures Taken by MFIs

Most frequent measures taken:

1. Finding solutions case by case (>50%)2. Applying a more flexible loan policy (>40%)

3. Increasing loan sizes to compensate for inflation

(>30%)4. Rescheduling loans (>25%)

5. Working with relief organizations (>25%)

6. Reducing interest rates (>20%)

7. Reducing savings requirements (>15%)

Only 4 out of 45 MFIs give out food


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What Role Should Microfinance Play?

Microfinance should serve as an instrument to increaseagricultural production (>75%)

MFIs should adapt their policies to alleviate theconsequences of the food crisis as long as doing so does notaffect their financial sustainability (>75%)

MFIs should focus on expanding access to finance and noton undertaking relief activities (>50%)

MFIs should take up emergency measures to help peoplesuffering from the crisis (>40%)

MFIs should serve as a channel to distribute aid(food/money) (>30%)


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Preliminary Conclusions

1. MFIs should focus on their core business in times ofcrisis, while managing the risks of bad debt

2. MFIs can support relief efforts in appropriate ways

We sponsor food, but dont distribute it ourselves. We dont

want to dilute our image. We are a financial service provider,not a relief organization.Pride, Tanzania

3. MFIs need to adopt robust risk management systems


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Preliminary conclusions

4. In times of food crisis what can governments do?

Maintain macroeconomic stability to avoid highinflation that can affect clients and MFIs

Strengthen social safety nets and food securitythrough nutrition and social protection programs

Promote agriculture production without introducinginterest rate subsidies


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Preliminary conclusions

5. Donors and investors can help MFIs better cope withcurrent and future food crises:

- Help MFIs adopt better risk management

- Foster the development of long-term fundingsources (e.g., deposits)

- Help MFIs better meet the needs of farmers throughlessons learned from worldwide experiences


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Advancing financial access for the worlds poor

www.cgap.org

www.microfinancegateway.org

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