Opportunities In Microfinance Amidst the Financial Crisis

2009 RBAP-MABS National Roundtable Conference May 12-13, 2009 Hyatt Hotel and Casino Manila John V. Owens Chief of Party, MABS

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

Optimism Amid the Anxiety
Dominoes of the crisis are hitting microfinance in very different ways worldwide
C redit 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

Challenge for the Philippines – Remittances?

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

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)

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

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

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

Broader Range of Services to their Microfinance Clients…

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

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

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

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 mobilization C.J. Agwu, Agric Banking FMFB

Opportunities In Microfinance Amidst the Financial Crisis

by MABSIV on May 26, 2009

Accessibility

Categories

Tags

Upload Details

Usage Rights

1 Embed 5

Statistics

Opportunities In Microfinance Amidst the Financial Crisis — Presentation Transcript