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Opportunities in Microfinance Amidst the Financial Crisis

Opportunities in Microfinance Amidst the Financial Crisis. John V. Owens Chief of Party, MABS. 2009 RBAP-MABS National Roundtable Conference May 12-13, 2009 Hyatt Hotel and Casino Manila. Microfinance Still Hums, Despite Global Financial Crisis.

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Opportunities in Microfinance Amidst the Financial Crisis

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  1. Opportunities in Microfinance Amidst the Financial Crisis John V. Owens Chief of Party, MABS 2009 RBAP-MABS National Roundtable Conference May 12-13, 2009 Hyatt Hotel and Casino Manila

  2. Microfinance Still Hums, Despite Global Financial Crisis • Microfinance operates differently from US subprime lending • Sector is more resilient • Methodology – Cash-flow & Character-Based rather than Asset-Based • Loan Characteristics – small & short-term • Innovative risk-management techniques

  3. Optimism Amid the Anxiety • Dominoes of the crisis are hitting microfinance in very different ways worldwide • Credit crunch • Inflation • Currency Devaluation • Global Recession • Drop in Remittances • Higher Unemployment • Nimble clients are actually benefiting from hard times adapting strategies to meet frugal customer demands

  4. Challenge for the Philippines – Remittances?

  5. Stability of Deposits Rural banks, with a broad base of deposits, are less exposed to refinancing and global crisis risks Challenges: • Note that some deposits are more stable than others • In a world where SMS allows communication in seconds, bank failures and closures can lead to a loss of confidence in banks Opportunities: • Higher deposit insurance coverage could lead to more confidence and higher deposits in rural banks

  6. MABS Participating Banks So far, banks are stable, growing & report little or no direct impact from the crisis. Still, there are some troubling signs: • Slight deterioration in portfolio quality • Slight increase in portfolio at risk over the past 12 months • Causes - primarily due to bank issues rather than global crisis • Slower growth rate of microfinance portfolio, especially compared to past growth rates • Banks more hesitant to extend credit • Tightening up due to PAR & focus on collections • Deposit mobilization is stable (Legacy issue is in the past)

  7. Microfinance – Opportunity for Rural Banks during the Crisis Banks looking at MF as a sound strategic investment decision • Loans are short-term, small, diversified • Solid cash generation potential • Solid track record of profitability • Sound risk assessment: methodology based on capacity to repay and character-based

  8. Strategies being recommended for Banks • Shore up financial position by increasing equity • Retain more earnings; pay out lower dividends • Diversify funding sources & secure additional funds • Focus on deposits (low income savers vs. institutional savers) • Negotiate credit lines • Rationalize operations but diversify • Reduce operating costs (to address decreasing profit margins) • Tighten risk management controls (to maintain healthy portfolios) • Manage portfolio growth: emphasis on those products that are short term, have smaller loan sizes and are more profitable • Diversify products and services

  9. Strategies being recommended for Banks • Marketing/Increase Public Confidence • Marketing campaign to focus on the importance of savings • Improve your image - Publish financial statements – MixMarket.org • Ratings – Get rated & publish reports • Maintain an image of safety • Follow improved transparency & fairness in dealing with clients

  10. Broader Range of Services to their Microfinance Clients…

  11. MABS IV – MEETING THE OPPORTUNITIES & CHALLENGES • Offering the MABS Approach to new banks – “GO BACK TO BASICS” • Product Diversification: • Expansion of Micro Agri Loans • Housing Microfinance Loans • Microinsurance

  12. MABS IV – MEETING THE OPPORTUNITIES & CHALLENGES • Improve Efficiency & Collections • Mobile Phone Banking Services • Support RB access to the Credit Bureau System • Small Claims Court Initiative • Training & Capacity Building – MABSTeRS • Distance Learning

  13. Crisis as Opportunity? Financial crisis could actually produce long-term benefits, even if they are painful – CGAP • Slower but stable growth • Stronger credit policies & procedures • Support for credit bureau • Better products • Consolidation of weaker banks into stronger ones • Boost to implement appropriate client protection policies & practices • Value of deposit-led approach

  14. Be savings-led and inspire your clients to save, match savings with loans, avoid funding mismatch, develop an array of savings and deposit products, be market driven…lend short and lend small, … race up on savings mobilizationC.J. Agwu, Agric Banking FMFB

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