The Impact of the Global Crises on the Microfinance Sector in Latin America.

A Threat for Client Outreach or an Opportunity for Improved Social Performance and Impact?

Reynaldo MarconiFORO LAC FR

“Global Governance, The Crisis and Development”

Workshop: Microfinance at Risk?

Questions

1) Crisis: ¿a threat for poor and vulnerable client outreach

or, an opportunity to improve social performance

and impact?

2) ¿What should be done in environment of crisis: live with and overcome the moment of crisis, or, convert the crisis in an opportunity and how?

Regional Context

The Latinoamerican drama es the reproduction and persistence of rural poverty.

Poverty in LAC passed from 45.7% in 1994 to 34.1% in 2007, and extreme poverty, from 20.8% to 12.6%.

Poverty and rural indigency levels still high: 52.1% and 28.1%

Note: even if there are no updated data on poverty levels, the food crisis increased the number of people with hunger in LAC from 45 mln in 2008 to 53 mln in 2009

Effects of the crisis in the region

Impact through 4 mechanisms:a) Lower income as a consequence of reduced labor opportunities

b) Lower income because of less remittances from migrants

c) Reduction of public expenditure, in particular social expenditure

d) Decrease of export income, because of reducion of consumption and imports in Northern markets

The rural area and vulnerable groups will be the most affected;

Need to induce policies to support smallscale agriculture and subsistence agriculture in order to revive the sector, in the framework of food security and sovereignity policies

¿Where is microfinance in LAC today?

Detail MFIs VC MFIs MS CFE / PFE

Legal Form Private Company Civil Associations and Foundations

Private companies;Associat. & Found.;Cooperatives

Purpose For profit Non-profit Various

Focus

Regulation

Microfinance as a businessRegulated

Outreach to poor and vulnerableNon-regulated (with exceptions)

Autonomous development clientsRegulated and Non-regulated

Market Usury Peri-urban and rural

Rural

Main clients Trade & services microentreprise

Trade & services microentrepriseWomen

Peasants and Agricult. Producers

Products and Services

Microcredit, savings, SAF

Microcredit and Village Banking

Investment Finance; SAF

Access to financial services in LAC Average in the region; 36% (World bank)

<10% 10 - 20%

20 - 30% 30 - 40%

40 - 50%

50 - 60%

60 – 70%

Nicaragua Haití HondurasCosta RicaGuyanaR. DominicanaVenezuelaArgentina

SurinamGuatemalaEcuadorParaguayBolivia

PanamáBeliceSan VicenteBrasilUruguayColombia

BarbadosBahamasTrinidadJamaica

Chile

But the rural world is invisible !! For example Brasil, it is a country considered with medium coverage, but the

rural poor still have few access to financial services, the inclusion is an urban phenomenon

160 millon of poor in the world have access to Microcredit (Bill & Belinda Gates Fundation, 2008)

South Asia Asia Pacific

Subsaharian Africa

Latin America

MENA EECA

20% 5% 3% 5% 2% 10%

% Percentage of poor active populationwith access to services

How much rural?Profile of Microfinance in LAC

IADB: 600 institution in 25 countries, over 8 millon clients, Credit portfolio USD 8.6 billon, 70% of volume and over 50% of clients are attended by regulated institutions

Poor in LAC190 mln (IADB,2008)120 mln (WB)240 mln (FAO)

Effect of the crisis in the operators

DETAIL MFIs VC MFIs MS CFE/PFE

Marketing strategy Upgrading Expansion Expansion and Penetration

Portfolio . . .Clients . . .Deposits . . .Innovation . . .Financial Return . . .Equity . . .Efficiency (operating costs/portfolio)

. . .

Volviendo a las interrogantesAmenaza u oportunidad?

DETAIL MFIs VC MFIs MS CFE/PFE

Threat to reduce or decline outreach to poor and vulnerable clients

Indifference.

Because of cautious policies and financial prudence, these limit their coverage and growth there is a real threat

Coverage is invariable and constant there is no threat

Opportunity to focus and deepen coverage

Upgrading strategies

These are subject to own and funding restrictions (less loan funding or more cautious apex funds)

Opportunity to focus on policies prone to food security and sovereignity

Back to the questions Threat or opportunity?

The crisis is not a threat to reduce or decline the outreach to poor and vulnerable clients, but an opportunity to focus and deepen coverage of microfinance services, adopting renewed approaches;The coverage is a necessary but insufficient condition. Positive and impacting changes should be promoted in order to enable clients to depart from poverty;For this, it is imperative to promote the management, monitoring and measurement of social performance in microfinance.

¿What should be done from the microfinance sector?

Focus on strengthening ot financial entities of the poor and vulnerable themselves, for example agricultural producers.

Work on the organization and functioning of a Certification System of Social Performance to differentiate the role of MFIs and privilege the support those with major impact on real poverty reduction.

MUCHAS GRACIAS

THANKS