#1

The global financial crisis has certainly affected most African Economies and most MFIs on the continent. At present, however, the effect of the crisis seems very minimal, but we expect it will have a significantly negative effect on the availability of funding for Sinapi Aba Trust going forward; both loans from its bankers and grants from donors.

#2

The adverse effects of rising food and fuel prices have been much greater on MFIs in Africa including SAT and its clients. In Ghana, rising prices have affected the national economy badly, pushing inflation higher (a year to date increase >8%). This has led to a rise in the inter-bank lending rates of about 10% in 5 months. The cost of funds from banks to SAT, and for that matter to all MFIs has also risen and unfortunately poor clients have to pay more for microfinance products. Since microfinance brings ‘banking to the door-step of the clients,’ the costs of operations including transport and fuel costs have increased significantly, putting many MFIs, including SAT, under stress.

With high inflation many clients are facing dwindling inventories since it costs more to replenish them. There is an increased number of client defaults and glaring signs of ‘client distress' at group meetings.

Moreover, food price hikes have increased the cost of feeding families, especially among the poor. In many cases clients spend more than their daily profits on food. This is causing rapid 'capital erosion' among poorer clients.

Some clients have reduced the number of family meals from 3 to 2 times a day and changed the make-up of meals from more nutritious but expensive foods to less nutritious, cheaper foods. SAT has put in place measures to increase efficiency in order to keep its prices as stable as possible and to maintain its operational and financial sustainability.

#1

The current global financial crisis has resulted in bank failures and a sharp reduction in the value of equities and commodities worldwide. MFIs like Amhara Credit and Savings Institution (ACSI) cannot avoid the effects of this global problem. Though there are currently no clear indications as to the effect of the crisis on ACSI’s operations, given the current state of affairs, some risks are likely and require that we prepare for potential turmoil.

Maturity mismatches between our lending and savings withdrawals are among the risks related to the crises, requiring ACSI to diversify its loan structure. Maturity mismatches can lead to “bank runs” in which depositors can force an MFI into a crisis even though the MFI is economically viable. As the crisis has already produced a “domino” effect around the world, there is a need for ACSI and its regulators to find thoughtful responses to the crisis.

In addition to the above, some lenders are compelling MFI’s to cater to their needs of achieving their agri-lending targets fixed by regulators at terms and conditions suitable to them.

#2

The increase in the price of food and oil can have a deteriorating effect on the MFI’s portfolio and/or equity. The effective loan interest margins have been lowered as a result of the new market situation. Savings have also been declining as a result. The repayment capacity of productive borrowers has been encouraging so far. Loan demands have increased impressively.

In response to the challenges, ACSI has attempted to create improved linkages with the Commercial Bank of Ethiopia (CBE) to bridge the liquidity gaps facing us. ACSI has made a temporary decision to slow down aggressive loan disbursements that might have arisen due to the inflationary factors. Loan size adjustments made to fit the increased price of commodities involved in clients’ businesses is among the helpful measures we have taken. It helps to expect good loan repayments to come from sound clients’ businesses. Other challenges are yet to be felt.

#1

Thus far we have not been able to identify any clear future impact of this crisis in terms of our organisation. We have consulted with several of the financial institutions who provide the Small Enterprise Foundation (SEF) with borrowings for on-lending and have been informed that they have not been directly affected by the crisis and do not anticipate any changes in the way they work with us.

It is likely, however, that some potential new sources of funds, especially private sector institutions with little understanding of microcredit, may now withdraw from initiatives to on-lend to institutions such as SEF or will introduce much stricter and probably more onerous appraisal criteria.

#2

Until now we have not picked up any direct concerns from our clients on these issues. After receiving your email we made some further inquiries and it appears that whereas the price of some food, such as cooking oil, has risen dramatically there has not been a major increase in the price of the staple food, maize. It appears that our clients (and their own clients) are shouldering the increases which have occurred by eating a little less meat with their meals.

It appears that the poor in South Africa are not being as badly affected as those in other countries and that they are facing the increasing prices with stoicism.