Publication: Fitch Sees Microfinance Tested By Crisis
London, United Kingdom, January, 22 2009 -
Fitch Ratings says that contrary to some industry views that microfinance is resilient to wider economic shocks, it will be difficult for the sector to remain immune from the global financial crisis.
As with the wider global financial system, Fitch expects the impact of the global financial crisis on the microfinance sector, to be two-fold: a funding or liquidity impact, which increases levels of refinancing risks for microfinance institutions (MFIs), particularly for non-deposit taking MFIs dependent on local or international wholesale funding; and an economic impact, with financial performance affected by lower lending volumes, increased costs of funding, tighter net interest margins, higher impairment charges and higher volatility in foreign exchange losses/gains.
In a special report published today, Fitch says the current crisis is exposing some MFIs to the convergence risks of greater integration of microfinance within the banking sector. "Many MFIs will revisit their strategy of commercialisation and transformation," says Mark Young, Managing Director in Fitch's Financial Institutions Group in London. "This is partly due to MFIs rethinking their strategies as they experience the downside of convergence risk."
The performance of MFIs will vary in this more challenging economic and financial environment, depending also on country-specific issues. "Slower growth will allow some MFIs to tighten lending and liquidity management procedures in particular, and build capacity in general," says Sandra Hamilton, Associate Director in Fitch's Financial Institutions Group in London. "In a way, it will be a much-needed "taking of stock" after several years of strong growth."
The report, Microfinance - Testing its Resilience to the Global Economic Crisis, is available on www.fitchratings.com.