#1

My first thought is to evaluate how the rise of the interest rate would change the exchange rate between the sol and the dollar, and the immediate impact in the MFIs in respect to currency risk.

Also, the rise of the Libor rate, and the impact of this for the MFIs (and their clients): If for example, CONFIDE, the IDB, the CAF and other sources for the MFIs have their funds in the international banking market (or if they adjust their rates to match this), we will have to see if the risk is transferred to [the MFIs].

On the financial side, although there is not an imminence of bad debt provisions on the part of the banks (or in the MFIs), the main banking issue is the liquidity for increasing programs and attention for clients. This is on account of the diminishing international funds, the exit of migrant capital (and major depositors), on account of the major guarantees that now offer other instruments, gold, or outside banks that are protected by the government. If the banks were to lower their liquidity, the government would have to act so that the depositors (big and small) stay calm, with US/European style strategies (raising the cap on federally insured bank deposits for small investors and guarantees for large investors, etc.) MFIs are included in this as banks.

The MFIs that are not funded in the Libor foreign market (or by ad-hoc funds for MFIs) will have fewer problems than the banks, as the interbank market is expensive and dry. This would include the possibility that the banks would prioritize microfinance in favor of the other sectors or include instruments other than credit, like the US/European banks. On the macro side and in the cash sector, like we know, all of this is already having an impact in the dollar (and the reserves), and there is a key issue in the commercial balance and the payments, that will have the tendency to show a deficit, that the international demand of commodities and manufactured goods will lower (as well as the prices).

#1

The global financial crisis is affecting the clients of ODEF and the institution itself, because a large portion of our clientele live in areas dominated by assembly plants. This sector has been one of the first to feel the effects of the crisis because the products these plants make are for export to the US. The crisis has caused a decline in incomes as well as layoffs, diminishing the sales in the micro and small businesses that these workers support. This in turn reduces local borrower’s capacity to pay off their loans and has caused us to make adjustments to the existing loans.

As the crisis persists it will continue to have an impact export sectors such as furniture, art, and finally food crops. This will cause a significant drag on the Honduran economy. To reduce the effects of this crisis on our clients we have been adjusting the loans that are at risk, eliminated consumption based loans, and are more closely analyzing the requests of prospective borrowers.

#2

The increase in the price of food and fuel has affected clients with small businesses the most, as their decline in income prevents them from buying the same amount of food they once did. Beyond the increase in food prices, they also have to pay more on electricity, transportation and other services. This is causing an increase in our portfolio at risk, which jeopardizes the liquidity of ODEF.

To address this situation the clients and the institution are reducing our costs and looking for other efficiencies. In the case of ODEF, we have reduced our energy use, reduced our purchase of fixed assets in order to maintain liquidity, and refined our use of field representatives to better use their time and equipment.

#1

We haven’t yet been affected by the financial crisis. Nevertheless, the affects are going to be seen soon and they are going to be serious. We believe that the crisis will affect Pro Mujer because we will have to augment reserves in case of a possible increase in the default rates on our loans.

Our clients are going to be very affected because their sales will decline, and the cost of inventory will go up. Their profit margins will diminish, and they will have to reduce the size of their businesses and take smaller loans. Clients whose successful businesses would have needed $1,000 or $2,000 are going to only need $500, but they may be inclined to continue taking larger loans to maintain their levels of personal consumption, and this will have a very negative effect on their business and on the growth of Pro Mujer.

Because of this situation, the number of people that live on $1 or $2 a day will increase and make survival even more difficult for them. We believe that this gives Pro Mujer an opportunity to expand the number of clients it serves, aligning our strategies to satisfy the needs of this "new" clients.

We will have to be more cautious with our growth and the delivery of our integrated services. Although our default rates may increase necessitating strict qualification for prospective borrowers, we have to find efficient strategies in order to be as effective as possible, to avoid raising the interest rates, and preventing farther harm to the economic situation of our clients.

#2

The food and oil crisis have absolutely affected our clients and has had a more immediate impact in our clients' than the financial crisis.

The economic slowdown can result in a vicious circle. As clients generate less income, they are forced to buy less food. The effects will soon be seen in very dangerous nutritional levels, above all for children.