#1

MFIs have been affected in many ways due to the Global financial crisis. Most Bangladeshi MFIs, however, borrow from PKSF, our national wholesale microfinance fund, so bank borrowing challenges are not applicable to them. But, there are a few MFIs who do borrow from banks. These MFIs will be affected by fund constraints. Previously, it was not so difficult to manage loan funds from banks, but currently it has become very difficult to manage these funds. Given that ASA is a self-reliant MFI, it has not yet faced many difficulties in managing loan funds.

Another challenge is the challenge of clients borrowing from multiple MFIs [Do you think rising food and fuel prices are pushing this higher?]. The rate of the overlapping among the MFIs is increasing rapidly, and the number of overdue loans is rising sharply. Consequently, the rate of loan recovery is decreasing gradually among most microfinance service providers.

In order to address this situation, ASA has adopted several policies such as rescheduling loan installments, increasing the size of loans, and strengthening the teamwork among staff members.

#2

All NGOs, especially those dealing with microfinance for the poor, have been more or less affected by rising food and fuel prices, ASA included. The rate of clients’ daily wages, as well as income from other sources, has not increased to match these rising costs. As a result, many poor borrowers are not in a position to pay back their weekly loan installments on a regular basis and it has affected the total loan portfolio of the organization. At the same time, MFI salaries and other costs have been increasing. This is reducing surpluses and causing a downward trend in sustainability.

ASA has been managing this situation through reorganizing and rescheduling loans through analyzing the overall financial condition of the overdue borrowers on a case by case basis. This has worked for us. I think, given these circumstances, MFIs should follow a “go slow principle” especially in respect to rapid expansion.

#1

SHARE is facing reduced access to funds due to the liquidity crunch faced by banks and other financial institutions. Though ‘In-Principle’, SHARE has sanctions to the tune of USD 155.6 million with lower interest rates, we face a peculiar situation from bankers and financial institutions trying to bring in new covenants like raising interest rates exorbitantly and asking for personal guarantees from our directors which is not allowing SHARE to utilize the funds.

The situation is alarming in India for MFI’s, particularly for SHARE, since it affects our credibility and strains the trust built over a period of two decades with our clients. This may result in clients not making timely repayments etc. Currently, SHARE’s relationship with our clients is good.

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.

Because SHARE is a non-deposit taking Company, it is not affected by any panic withdrawals. Presently, equity investors are showing interest in MFI’s which is a good sign, but this may be adversely affected over a period of time. Further, valuation of MFI’s is very attractive due to the buoyancy in the market.

SHARE urges its clients to use loan funds effectively in order to get through the present global financial crisis.

#2

SHARE’s operating costs spent on daily staff travel for meetings with clients have increased due to increasing fuel prices. This has affected the bottom line of the company. In spite of this, SHARE has not increased its interest rates to the end borrowers.

To contain rising prices in India, the government has imposed strict export bans on rice to ensure that food remains available for domestic consumption. SHARE’s clients have devised newer methods of bargaining in the markets in order to purchase commodities at cheaper rates and sell their produce at higher rates by eliminating middlemen.

Some State Governments are providing free electricity to the public in order to raise productivity and help contain inflation. Recent reductions in global oil prices are beginning to bring down costs.

People who were already living at subsistence levels when oil was relatively cheap are extremely vulnerable when oil prices rise, and may simply be unable to afford enough food to survive. However, a few have mitigated the effect of oil on mechanized agriculture by using bio fuels to power their farm equipment and others have increased their loan sizes to maintain their subsistence levels.

SHARE is educating its clients to mitigate inflation by identifying alternate sources of fuel and food supplements to sustain themselves.

#1

At the management level the financial crisis has created a lot of apprehension about the future of microfinance itself. As an organization this apprehension has affected our expansion policy. We wanted to introduce a pension product to our stakeholders with the help of mutual funds. We have had to shelve this initiative.

While we are still not facing a financial crunch, an inflow of fresh funds has been delayed. The interest rates have gone up by at least 250 basis points. SKDRDP has so far been lending to its clients at bank rates. This has created an adverse affect.

#2

The food and fuel prices in the country have caused a sharp rise in inflation. This has not affected many of our working class clients because they have been able to get a compensatory remuneration to offset the inflation. However, it has affected a large number of our clients who are engaged in small activities like farming, business, trading, and service providers as their profit spread has really come down. This has also affected their borrowing power. Overall, our repayment rates in urban areas have also been affected as the effects of inflation are felt most sharply in those areas.

#1

The first impact has been the lack of liquidity in the capital markets, which has curtailed our ability to raise additional funds for the year. Given the financial melt down, the first thing we did in March of this year was to revise our growth plans from 500,000 to 350,000. Over the past 9 months the Foundation has actually grown at 6%.

The second impact has been a substantial rise in the cost of doing business. As mentioned above, due to constrained liquidity, the cost of funds has increased by over 450 basis points, while, at the same time, due to the energy crisis, the cost of transport, electricity, etc have also spiked. This has been combined with the expectation that salaries should also increase in line with inflation. A recent survey of staff has shown that over 50% of our current staff are not happy with the salary structure and there is a visible expectation that the cost of living adjustments should be given to staff. This will again have an impact on loan officer productivity and overall efficiency and sustainability.

The third impact is on the quality of the portfolio. This is linked to greater exits as clients businesses are failing, combined with a constrained ability in terms of servicing loans.

What the MFI can do:

• Be prudent and grow slowly during this period
• Remain in close touch with clients
• Look at ways of enhancing efficiency – to counteract rising prices
• Improve overall compliance and monitoring
• Remain liquid

#2

By the end of August 2008, food prices in Pakistan had increased by 34% since the previous year. Kashf Foundation has taken a proactive stance in tackling the issue of food price inflation. They conducted a survey of 100 households in August 2008 to gauge the impact of the food crisis on clients’ daily lives in an effort to devise strategies to protect clients from future food price volatility. Ninety percent of clients in Kashf’s recent survey said current food prices have placed a significant financial burden on their families.

Kashf’s survey found that their clients were using three main coping strategies:

1. Clients have been eating less. Seventy-eight percent of clients surveyed said they now eat significantly less than before the current inflationary trend began.
2. Clients are working hard to make ends meet. The food price spike has forced many Kashf clients to take on another job, or start an additional business, in order to increase contribution to the family income.
3. Rising food prices reduce client households’ ability to save. This situation can quickly lead to over-indebtedness.