July 2, 2009

Cloudy Skies at the Microfinance Horizon?

Microfinance may be in for some rough times, as the impact of the global recession works its way down the economic food chain.

In Africa, less money for microfinance projects is coming in from Europe and the United States, the Daily Nation of Kenya reports.

Meanwhile, the demand for microfunds is up threefold, reports the Africa Microfinance Action Forum, as people lose their regular jobs and look to become entrepreneurs.

The same scenario is playing out in Europe. Although a new European Union microfinance institution is being set up to provide small-business loans for the unemployed, New Europe reports that critics are already saying it offers too little.

The Jordan Times notes that the country’s royal family is making a pitch for more support from microlenders for agricultural projects, while in the Philippines, Business World Online reports that the Mindinao Microfinance Council has almost halved its goals for clients served by 2010 — from 1 million to 600,000.

The same struggles may affect loan repayment. A recent survey predicts that soaring defaults by low-income borrowers in Africa may ruin hundreds of microfinance lenders, reports The East African.

And growth in microlending in the United States may also divert resources from the developing world, with Kiva, which defines itself as the world’s first person-to-person micro-lending website, taking the lead.

Until now, Kiva has focused on developing countries; opening the door for American entrepreneurs could increase the competition for microfunding worldwide.

The guru of microfinancing — Bangladeshi economist Muhammad Yunus, a Nobel laureate — has also set up U.S. operations, first in New York, and now in Omaha, Nebraska, reports World Magazine.

Yunus follows a model of what he calls “trust-based banking,” by lending money to women, whom he finds more reliable than men because of their concerns for their children, according to the Taipei Times.

While many still sing the praises of microfinancing, an ongoing study by the Washington, D.C.-based Center for Global Development questions whether microfinancing really works.

The researchers, David Roodman and Jonathan Murdoch, say that previous studies were contradictory, producing “controversy and confusion” as to whether microfinancing, as opposed to other factors not effectively measured by the studies, has a positive impact on low-income borrowers.

“Strikingly, 30 years into the microfinance movement we have little solid evidence that it improves the lives of clients in measurable ways,” they wrote.

–Ronnie Lovler/Newsdesk.org

Sources:

“MFIs Face Collapse As Financial Crisis Bites”
AllAfrica.com, June 22, 2009

“Lots of plans and hopes at (un)Employment Week to restore confidence”
New Europe, June 28, 2009

Kiva

“Microloans for all?”
Inc.com, June 10, 2009

“Microfinance vital for agricultural sector development”
Jordan Times, June 23, 2009

“The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence”
Working Paper 174, June 19, 2009

“Muhammad Yunus: a man you can bank on”
Taipei Times, June 7, 2009

“Recession-proof banking?”
Worldmag.com, June 20, 2009

“Credit crisis hits SME financiers”
Daily Nation, June 3, 2009

“Mindanao microfinance group expects less clients due to weak economy”
Business World Online, June 16, 2009

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