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The Latest Corporate Social Responsibility News: Slippery When in Debt: Microfinance Not Immune from Broader Market Risks

Submitted by: CSRwire

Categories: Events, Corporate Social Responsibility

Posted: Jul 08, 2009 – 12:00 AM EST

 

July 7, 2009 -

“So, Muhammad Yunus is walking down the street when he slips on a banana skin…” But seriously, playing the classic joke on the 2006 Nobel Peace Laureate highlights the fact that microfinance-- the practice Yunus pioneered to make small loans to poor women to leverage themselves out of poverty -- is not immune from the risks plaguing the rest of the global economy.

A year-and-a-half ago, when the Center for the Study of Financial Innovation (CSFI) first applied its trademark “Banana Skins” risk assessment methodology to microfinance, this assessment was furthest from the minds of the microfinanciers surveyed. Weaknesses in management and corporate governance topped the list of concerns of the 300-plus industry players from 74 countries whose comments informed the Microfinance Banana Skins 2008 report. While these problems have not fallen off the radar screen, they’ve been supplanted by a list of issues that mirrors those facing mainstream finance, according to the Microfinance Banana Skins 2009 report released today.

A surge in bad loans, shortages of liquidity and funding, and declining profitability -- all risks stemming from the global financial crisis -- headed up the concerns of the 400-plus practitioners, investors, regulators and analysts in 82 countries surveyed in the latest report, co-sponsored by Citi Foundation and the Consultative Group to Assist the Poor (CGAP) and supported by the Council of Microfinance Equity Funds (CMEF.)

“These findings turn the earlier survey on its head,” said David Lascelles, the CSFI senior fellow who authored the report -- and pioneered the Banana Skins methodology over a decade ago. “Last year’s result reflected the traditional view that microfinance operates in a world of its own with abundant funding and loyal customers. But the crisis has shown that it is also exposed to the shocks of the ‘real economy.’”

Indeed, the survey reveals the risk that some microfinance institutions (MFIs) may fail, like a slew of their mainstream counterparts. On the bright side of the road, the respondents also note that MFIs cut their teeth in stressful markets, and so may be more resilient at weathering the stormy economy.

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