Benchmarking Microfinance in Central America 2010

Examining response of Central American MFIs to the 2008-2009 crisis

This report benchmarks microfinance in Central America for 2010.

Central American MFIs witnessed deceleration in growth, increase in arrears, and lowering trend in returns in 2008. These signals were the beginning of a crisis that became more acute during 2009. Consequences of the crisis included:

Reduction in MFI size, scale and outreach;
Increased portfolio at risk;
Deterioration of returns;
Continued increase in arrears;
Crisis of trust between investors and MFIs and between MFIs and clients;
Exit of funds, especially in Nicaragua, due to perceived country risk.

Macroeconomic factors, weakness in MFI governance and high indebtedness of clients caused increase in arrears. The crisis led to a clean-up of demand, leading MFIs to analyze their client portfolios and increase write-offs. In contrast to microfinance, the banking system showed increases in deposits from the public. The paper predicts that the crisis will continue for another year and recommends that MFIs learn from the banking sector, and establish enabling regulatory framework to overcome the crisis.