The current world financial crises has already and seriously affected the liquidity needs of the respective MFI. Access to donor and / or investor funding to finance the further growth of the loan portfolio is drastically reduced. Even the microfinance investment funds have difficulties to fund raise. On the medium and long run the negative effect of the current world financial crisis is that good MFIs with good quality loan portfolio are facing a serious slow-down of their growth as well as liquidity and reputation risks due to the fact that they can no longer meet the needs of both existing clients, that are graduating the loan cycles, as well as of the new, potential micro-enterprises. ======================== I would appreciate the reader's comments/feed-back whether pros or cons. Thanks

1. MICROFINANCE BEST PRACTICES
George Staicu
Senior microfinance and banking consultant
THE WORLD FINANCIAL CRISIS AND THE NEGATIVE IMPLICATIONS ON
MICROFINANCE INSTITUTIONS
DECEMBER 2008
Last week I have just finalized a technical assistance consulting project (funded by the
European Fund for South east Europe) for an MFI in Kosovo in the areas of financial and
risk management and I can definitely state that , on the short run, the current world
financial crises has already and seriously affected the liquidity needs of the respective
MFI.
Access to donor and / or investor funding to finance the further growth of the loan portfolio
is drastically reduced. Even the microfinance investment funds have difficulties to fund
raise. On the medium and long run the negative effect of the current world financial crisis
is that good MFIs with good quality loan portfolio are facing a serious slow-down of their
growth as well as liquidity and reputation risks due to the fact that they can no longer meet
the needs of both existing clients, that are graduating the loan cycles, as well as of the
new, potential micro-enterprises.
On the other hand the commercial banks are speculating the liquidity squeeze that MFIs
are facing through imposing them tougher borrowing conditions (higher interest rates).
Some banks are even "blackmailing" the MFIs by threatening them that the existing (but
maturing) credit-lines will not be renewed / rolled-over, unless the MFIs will move to the
respective banks their current accounts (where MFI's loans disbursements and clients'
loan repayments are taking place) that were already opened at other commercial banks.
Such "demands" are addressed irrespective of the fact that the respective blackmailing
banks are not providing all the services needed for a professional management process of
a MFI (for instance, the internet banking service that is needed to easily undertake inter-
branch fund transfers any time/day in order to meet the loan disbursements and cash
management needs) .
As a conclusion the current world financial crisis has already started to have a negative
impact on the microfinance area, generating a dangerous chain reaction through a vicious
circle: lack of funding for MFIs means lack of finance (micro-loans) to MSME - many of the
MSME will close - unemployment will rise, poverty levels will deepen, all of these
compromising the MFIs' social mission as well as the economic development processes…

2. There is a definite need also to reform the whole international financial system, including
the IMF, World Bank, EBRD, European Commission (its aid development programs arm),
etc. and, along with this reform, to develop a new and comprehensive world economic
development strategy with clear objectives, short-medium-long term operational plans and
budgets, deadlines and responsibilities.
A such strategy MUST address and solve all the flaws of the existing international financial
system and especially the survival / development needs of the poorest countries / regions
affected by the current financial crisis and with a major strategic objective and emphasis
on a strong financial support (rapid funding access, technical assistance for institutional
development, etc. ) to the microfinance sector.
The support for the MFI sector, and especially the access to donor/investor/commercial
bank funding (at a commercial but realistic cost), must be the TOP PRIORITY of the
respective new strategic objectives and of the new world financial system. After all the
MFI's clients - the Micro-Small & Medium Enterprises represent the most important pillar
for every economy and the backbone of sustainable economic development strategies and
programs.