The Impact of the Financial Crisis on Microfinance Institutions and Their Clients

CGAP surveyed MFIs in March 2009 to monitor the impact of the financial crisis. Over 400 MFI managers responded, providing a good representation of regions and institutional sizes. According to respondents, sustained high food prices, severe economic contraction and massive job losses are hurting MFI clients most. Findings include:

• Clients are prioritizing food expenditures and have greater difficulties repaying their loans;
• Many MFIs are finding it harder to access funding, and their microcredit portfolios are stagnant or shrinking;
• The crisis' effects on microfinance differ from country to country;
• MFIs in Eastern Europe appear to be the most affected, while those in the Middle East and North Africa (MENA) region are generally less impacted. 

The credit crunch and economic recession have forced most MFIs to slow the growth of their microcredit portfolios. MFIs are facing a liquidity crunch and the quality of their portfolios is deteriorating. They have been coping by decreasing hiring, while keeping interest rates steady. The situation might worsen as the sector experiences the full impact of the crisis. Ultimately, the fate of microfinance will depend on how the crisis will impact its clients.