The Covid-19 Observatory is a space dedicated to articles related to the Coronavirus, as well as to the results of the Foundation’s investigations and analyzes around the impact of the crisis on the microfinance institutions supported.
You will also find all the information relating to the joint commitment signed by a group of donors and microfinance platforms to support microfinance institutions and their clients in the face of the Covid-19 crisis.
Pledge to reinforce microfinance
Covid-19 affects Microfinance Institutions of different sizes in different ways
ADA, Inpulse and the Grameen Crédit Agricole Foundation have joined forces to closely monitor and analyse the effects of the COVID-19 crisis among their partners around the world. This monitoring will be carried out periodically throughout the year 2020 with the purpose of evaluating the evolution of the crisis. Through this constant and close analysis, we hope to contribute, in our own way, to the structuring of strategies and solutions tailored to the needs of our partners, as well as the dissemination and exchange of information among the different actors in the sector.
The results presented in this article come from the second wave of a joint (1)survey by ADA and Grameen Crédit Agricole Foundation, Inpulse having decided to join the initiative for odd-numbered waves. The responses were collected from 18 June to 1 July from 108 microfinance institutions (MFIs) based mainly in Latin America and the Caribbean (LAC, 46%), Sub-Saharan Africa (SSA, 29%), Asia (14%) and Eastern Europe and Central Asia (EECA, 10%), with a single MFI from the Middle East and North Africa (MENA) region. This panel of respondents spans a relatively diverse range of MFI sizes, with 49% of Tier 2 MFIs,(2) 35% of Tier 3 MFIs and 16% of Tier 1 MFIs. Figure 1 shows their regional distribution.
Figure 1. Respondents by region and tier
MENA Tier 2
The latest wave of the survey reveals that the crisis faced by MFIs has laid bare the structural strengths and weaknesses specific to their sizes: the biggest MFIs (Tier 1) appear better equipped to overcome the financial difficulties resulting from the health crisis and epidemic containment measures, as well as to take crisis management measures and make use of the specific measures put in place by local authorities. Smaller MFIs (Tiers 2 and 3), on the other hand, are more likely to offer their clients non-financial services to help them cope with the situation and are eager to continue developing non-financial services in the future. More generally, if they are considering launching new products or services, it is mainly to meet the needs of their clients rather than following their strategy or reducing risks. While big MFIs appear to be more resilient in times of crisis, small ones are also rising to the challenge and staying true to their powerful social mission. This is a real strength for these institutions, which should not be neglected in favour of more autonomous structures during the current crisis.
The biggest MFIS are less exposed to financial difficulties…
Since June, epidemic containment measures have been relaxed in certain regions, particularly Eastern Europe, Central Asia and Sub-Saharan Africa. As a result, the operational difficulties faced by microfinance institutions have ebbed in these regions since May,(3) but they are still very much present in Latin America and the Caribbean, where containment measures are still in place and a higher percentage of MFIs still find it difficult to move around, meet clients in agencies and, therefore, to disburse loans and collect loan repayments, as can be seen in Figure 2. For example: 76% of MFIs in the Latin America and the Caribbean region report that their staff is finding it difficult to move around, compared to 23% in Sub-Saharan Africa.
Figure 2. Operational difficulties faced by MFIs by region:
As explained in our previous article, these operational difficulties are having an impact on the portfolio and its quality in all MFIs. However, the resulting financial difficulties vary by MFI size. Overall, the biggest MFIs are less likely to face these types of problems, with lower percentages of Tier 1 MFIs reporting difficulties in repaying funders (12% versus 22.5% of Tier 2 and 3 MFIs), insufficient equity capital to cope with the crisis (6% versus 29% of Tier 2 and 3 MFIs) or lack of liquidity (2% versus an average of 29% of Tier 2 and 3 MFIs), as can be seen in Figure 3. Tier 1 MFIs appear better equipped to absorb the impact of the crisis on their financial situation.
Figure 3. Financial difficulties faced by MFIs by size
Although an increase in the portfolio at risk is the main difficulty faced by all MFIs, this increase varies by MFI size. Tier 1 MFIs have experienced smaller increases than other MFIs, as can be seen in Figure 4: only 12% of Tier 1 MFIs report that their portfolio at risk at 30 days has doubled or more than doubled compared to end 2019, versus 44% of Tier 2 MFIs and 57% of Tier 3 MFIs. In contrast, 35% of Tier 1 MFIs report a stabilisation or decrease in this indicator, versus 17% of Tier 2 MFIs and 8% of Tier 3 MFI.
Figure 4. Changes in the PAR30 of MFIs compared to end 2019 by MFI size
…and more likely to implement crisis management solutions…
The governments of most countries have taken measures to help microfinance institutions to weather the crisis. However, not all MFIs are benefiting from these measures. While the exact percentages vary from one region to the next, probably due to differences in the communication and implementation of these measures (e.g. MFIs in Asia are more likely to report making use of a certain number of measures), geographic location does not appear to be the sole determining factor for making use of certain government measures: bigger MFIs are also more likely to benefit from them, as can be seen in Figure 5.
Figure 5. Government measures from which MFIs have benefited by MFI size
This size effect is real because it cannot be explained by a specific distribution of MFIs by region. For example, when it comes to rescheduling or cancelling the payment of taxes and the non-provision of loans affected by COVID-19, a regional analysis shows that MFIs in Asia are more likely to benefit from these measures despite Tier 1 MFIs being in the minority in this region. Similarly, when it comes to liquidity lines, MFIs in Sub-Saharan Africa are among the most likely to benefit from them despite Tier 1 MFIs being few and far between in this region. As for the operational and crisis management measures implemented, the types of measures again vary by MFI size (Figure 6): For example, 100% of Tier 1 MFIs in the sample restructured client loans, versus an average of 69% of other MFIs. They are also more likely to engage with supervisory authorities to explore the possibility of suspending prudential regulations during the crisis. In contrast, Tier 3 MFIs are less likely to use their liquidity plans or implement new digital solutions.
Figure 6. Operational and crisis management measures taken by MFIs by size
…while small MFIS continue to focus on their clients’ needs
In contrast, despite facing significant challenges, the smallest MFIs continue to focus on their clients’ needs: for example, they are more likely than Tier 1 MFIs to have surveyed their clients to better understand the impact of the crisis (Figure 7). On the other hand, although they were less likely to disburse emergency loans to their clients, they were more likely to implement measures that went beyond their core business to better meet the needs of their clients during the health crisis. For example, more of these MFIs launched hygiene awareness campaigns on hygiene or provided clients with emergency kits. Bigger MFIs were less likely to offer these types of direct services to clients, instead forging partnerships with specialised
Figure 7. Crisis response measures for clients by MFI size
More Tier 1 MFIs reported interest in launching new products or services in the medium term; as shown above, these MFIs have fewer financial constraints and, therefore, more room for manoeuvre in this regard (Figure 8). More specifically, while few MFIs overall are planning to launch microinsurance products in the future, Tier 1 MFIs are the most likely to do so. They are also more likely to want to increase their focus on agriculture or launch new digital products and services. The smallest MFIs, on the other hand, also want to start offering non-financial services such as financial literacy and business development services.
Figure 8. New products, services or markets that MFIs wish to develop in the medium term, by size
The motivations for MFIs to focus on new markets or develop new products or services also vary by size (Figure 9): Among those that reported wanting to launch at least one new product or service and stated their motivations (76 out of 108 respondents), the desire to meet the new needs of clients and/or follow new market trends was more frequent among Tier 3 MFIs than among MFIs in other tiers. In contrast, there are fewer that base this choice on following their strategic plan or striving to reduce risks.
Figure 9. Main motivations for MFIs to focus on new markets, products or services by size
The focus of the smallest MFIs on their clients’ needs will probably become one of their strong points during this crisis.
(1) The results of the first wave of the survey of ADA, Inpulse and the Grameen Crédit Agricole Foundation’s partners
can be found here: https://www.findevgateway.org/paper/2020/06/beyond-difficulties-posed-covid-19-crisis-newopportunities-are-emerging-microfinance
(2) Tiers are defined according to the value of their total assets: over USD 50 million for Tier 1, USD 5 to 50 million for
Tier 2 and under USD 5 million for Tier 3.
(3) See the results of the first wave of the survey, available via the above link.
Impact of COVID-19 on Refugee Saving Groups in Uganda
VisionFund Uganda has been working in Obongi district since May 2019 and has disbursed US$ 92,000 to 100 savings groups, supporting 2,264 individual group members. VisionFund started training saving groups in Yumbe district late 2019, but has not financed any group yet. Savings groups have been operating in both districts for some time and all the interviewed groups have been in existence for at least two cycles (or two years). VisionFund Uganda is the first MFI to offer loans into those groups. Between April and May, a study was conducted to understand the effect of COVID-19 on savings group (SG) on both host and refugee communities.
Savings Group Meeting Behavior
The majority (81%) of the groups are still meeting; only 19% of groups have stopped meeting. The main strategy has been to keep meeting (65%), but in small groups as per government requirements on social distancing. One explanation for the stronger resilience of the refugee groups may be that these groups had more support in their formation than host groups. Almost all refugee groups are still saving (some are saving less) while 24% of host groups have stopped saving. The conclusion is that refugee groups have not only adapted to the new meeting guidelines but have also found ways to continue meeting, showing higher levels of resilience.
When asked about the future of the group, of the overall 417 participants 65% expected to continue to save. However, it is worrying that 28% of all respondents expected to drop and for host communities this was up to 39% of respondents. It is important to better understand what this means long term.
Impact on Households
Households were stressed on two fronts. 88% of all respondents reported an increase in staple food prices, which puts pressure on household budgets. Almost all refugee respondents (96%) reported the increase, which probably reflects the reduction of their WFP rations. At the same time, 92% of all respondents reported some level of financial stress due to either lower business activity (34%), decreased income (23%), challenges to save (25%) and food insecurity (11%). It’s safe to conclude that all households were stressed by the COVID-19 pandemic, but even though refugees were stressed at a higher level, they proved to be more resilient.
Despite these stresses, households are not resorting to increased demand for the SG social fund or selling their assets (87% haven’t had to sell any assets). In terms of demand on the savings group social fund, 58% of the groups reported no change in number of requests (with little difference between host and refugee), but did note that those who did request use of the social fund, the amount was significant.
Savings group members engage in multiple economic activities. Similar to other studies on the impact of COVID-19, 93% of all respondents reported some level of reduced income. More than half of the groups reported either a big reduction in income (47%) or a complete stop to income (11%). Interestingly, 6% reported an increase in income reflecting that there are business opportunities even in a crisis.
A last question asked how groups were adjusting their businesses due to the COVID-19 crisis, this shows a range of different activities that households are doing to survive. This again shows how refugees are adjusting in various creative ways to the stresses they are facing.
In conclusion, the three following points can be highlighted:
- Refugee savings groups are resilient: The demonstrated resilience of these refugee savings groups (compared to host groups) continues to support the thinking that the formation and support for refugee savings groups is a key response to livelihoods for long term refugee communities.
- COVID-19 is having a dramatic impact on the livelihoods of the rural poor: This survey was undertaken in a remote part of Uganda which supports anecdotal evidence that rural communities are as much impacted as the more visible impacts of COVID-19 on people livelihoods.
- Surveys can be done safely in a lockdown situation: Finally, this report shows that even in a lock down situation, using a simple digital tool and practicing social distancing guidelines surveys can be done quickly.
Further information on VisionFund’s Refugee Microfinance programme in Uganda here.
A Consortium to support microfinance in Africa during Covid-19 crisis
In the economic crisis linked to Covid-19, the occurrence of a liquidity and / or solvency crisis turns out to be one of the main risks microfinance institutions are facing. To deal with this, the Grameen Crédit Agricole Foundation, the Microfinance African Institutions Network (MAIN), International Solidarity for Development and Investment (SIDI) and the ACTES Foundation are creating a consortium to better support the organizations supported in Africa.
In April 2020, MAIN sent a questionnaire to all its members in order to gather their needs and find out what type of support the network could offer them. The results of this survey show that most of the institutions questioned encounter difficulties in managing their liquidity and wonder how to continue to serve their customers in a sustainable manner in such a context.
It is in this context that the Consortium was formed, which brings together the Grameen Crédit Agricole Foundation, MAIN, SIDI and the ACTES Foundation. The objective of the Consortium is to provide the organizations supported with risk analysis and management tools in order to anticipate and better manage the impact of the crisis on their liquidity and solvency.
The Consortium will thus offer 50 microfinance institutions, including 31 partners from the Grameen Crédit Agricole Foundation, mainly in West and East Africa, support on the theme of liquidity and solvency risks management. The target organizations are mainly small institutions (Tiers 3: loan portfolio <10 million dollars), very present in rural areas.
The support will take the form of a cycle of three online training courses for each institution, workshops and personalized coaching, which will be provided by Cabinet Senbumo. In addition to liquidity and solvency management, institutions will be trained on the subject of resumption of activities following the Covid-19 crisis. The programme will start on July 06, 2020 and will last for 6 weeks.
Microfinance lenders and platforms endorse principles in Covid-19 crisis
July 2020. Two groups of lenders and microfinance stakeholders published a set of principles to support the microfinance sector and fragile clienteles in Covid-19 crisis. Both groups have coordinated their efforts for complementarity and consistency.
Microfinance institutions (MFIs) have an important role in the fight against poverty. They offer financial and non-financial products and services to support income-generating activities for low-income populations. In Covid-19 crisis, supporting the microfinance sector is then essential to protect the most vulnerable populations. This calls for a collective approach within the sector.
That is why, we, Leading microfinance lenders, impact funds, platforms and networks covering markets in Africa, Asia, Central Asia, The Middle East, Eastern Europe and Latin America, have established two complementary agreements. They frame a series of principles to support MFIs in order to avoid credit crunch, which would be extremely harmful for microfinance’s fragile clienteles. We published both documents as guides for the investment teams, investors, investees, and other stakeholders.
- “Key principles to !protect microfinance institutions and their clients in Covid-19 crisis”: In this agreement, the pooling of available information, analyses and anticipations, as well as the concerted implementation of shared decisions are the fundamental principles. The signatories, including lenders, impact funds, platforms and networks, agree to coordinate policies, technical assistance and resources to help microfinance institutions face the crisis. The objective is to protect the microfinance institutions and their clients to ensure the continued access to funding in the best possible conditions and to look out for clients’ and staff well-being.
- “Coordination among microfinance MIVs in response to Covid-19 crisis”: This Memorandum of Understanding (MOU) addresses the impact on the liquidity flows within financial institutions as a result of Covid 19 and related actions to prevent spreading. The MoU among MIVs further acknowledges the importance of timeliness and cooperation among lenders and other stakeholders and presents a framework for managing Covid related debt rescheduling.
Subscribers to the Pledge and MoU acknowledge and express support for both documents as they are considered complementary serving a similar purpose. Other public and private actors in the financial inclusion sector are invited to support, endorse and act in line with the principles presented. In particular, the signatories believe that it is essential that the public sector aligns with private sector practices to strengthen the impact-investing sector and its social impact on low-income households and small businesses.
The participation of all stakeholders is vital to enhance the impact of microfinance. We are committed to continue to support our partners’ action to promote financial inclusion all around the world.
Covid-19 crisis: New opportunities are emerging for microfinance institutions
ADA(1), Inpulse(2) and the Grameen Crédit Agricole Foundation have joined forces to closely monitor and analyze the effects of the COVID-19 crisis among our partners around the world. This monitoring will be carried out periodically throughout the year 2020 with the purpose of evaluating the evolution and trend of both the effects of the crisis and the financial needs and adaptation measures implemented by our partners. We hope with this constant and close analysis to contribute, at our level, to the structuring of strategies and solutions according to the needs of our stakeholders, as well as the dissemination and exchange of information between the different actors in the sector for the joint construction of comprehensive and systematic solutions.
This article is based on the responses provided between May 18 and May 27, 2020 by 110 partners. Which are present in 47 countries distributed between Europe, Africa, Asia and Latin America, 5 Regions(3) and 13 Sub-regions of the world(4). In our analysis, we addressed 46% of very small MFIs, with less than 5 million assets (Tier 3), 47% of medium size, with an amount of assets between 5 and 50 million (Tier 2) and 7% with a size greater than 50 million assets (Tier 1)(5).
The current period leaves no MFI or region of the world indifferent. The crisis related to COVID-19 has struck at the heart of most microfinance activities. All of the institutions surveyed have faced common problems because of the crisis: difficulties in disbursements, collection of reimbursements and meeting with clients, among others. These deeply operational activities, which are closely linked to client contact and meeting with customers, have financial consequences for MFIs. Portfolio and risk management are among the first short-term challenges raised by the crisis according to more than 80% of our partners.
However, pronounced regional differences emerge from this research. The health crisis, which is constantly evolving, does not have the same impact on all regions of the world, and not with the same intensity. On the operations side, for instance, the difficulty or impossibility to collect savings is not an issue for all. This concerns 56% of the surveyed MFIs in Sub-Saharan Africa and 60% of those in South Asia, whereas the matter is hardly mentioned in other regions, if not even mentioned. This depends on the constitution of the local market, and on the capacity for institutions to offer this product to their customers, according to the legislation in force. On the restrictions caused by the crisis, we note that a high proportion of MFIs in LAC, Central Asia and the MENA region witness that it is difficult for employees to move around or to meet clients in branches, contrary to MFIs in South East Asia or Sub-Saharan Africa.
The increase in the portfolio at risk is also having diverse impacts depending on the region. For instance, only 17% of MFIs in Central Asia, Europe and LAC record a PAR 30 + R that has more than doubled, while this is the case for 41% of MFIs in Sub-Saharan Africa, 27% of those in South Asia and 33% of those in MENA. However, none of the MFIs in the regions analyzed are free from the negative impact on their portfolios. This is due to the fact that globally, 80% of the respondents indicated a deterioration in portfolio quality, this impact represents a challenge for the entire sector in the short and medium term.
To address these issues, the financial needs of MFIs also vary. While 58% of the surveyed MFIs express additional funding needs, this is not as true for the EAC region. Indeed, 57% of the MFIs in this region report having no additional needs, and 22% consider that their funding needs have decreased. On the other hand, about 30% of the institutions in the MENA, SSA and LAC regions have funding needs that are between 20% and 50% higher than their expected.
In a broad way, the information collected demonstrates the proactivity of MFIs facing the crisis. All around the world, MFIs have multiplied adjustment measures to adapt to the crisis. The institutions have chosen not to remain passive when facing the consequences of the global economic downturn, for which they have constituted crisis management and monitoring committees, elaborated continuity plans and established debates with all interested parties. Finally, beyond the conjunctural difficulties, the reflections led by most of our partners are also directed towards new opportunities for the future, with for example the targeting of new markets or the development of new products. This could contribute in the future to greater flexibility for our partners, although this remains to be confirmed.
The impact of the COVID-19 crisis on the microfinance sector: the view of different MFIs around the world
The rigor of the containment measures is still variable between the different countries. 44% indicated that in their countries there are almost total lockdown and total restriction of movement. 46% of our partners, mainly those located in the SSA and LAC region, reported limited lockdown and partial movement restrictions. In contrast, 10% of the partners, mainly those located in LAC, stated that there are no or very few containment measures (no lockdown and no travel restrictions). The context of each region is different and largely, or totally, determined by the actions established by government authorities. While in the EAC region there seems to be greater uniformity in containment measures, it is not the same in Latin America where restrictive containment measures have been established in some countries while in others this type of measure has not yet been contemplated.
Another important aspect to consider is that the process of spreading the pandemic has been gradual between the different regions of the world. The COVID-19 crisis did not affect all regions at the same time. At the end of 2019, the virus was widely spread in China, in March it had been controlled in Asia, however, at the same time, Europe was becoming the new epicenter of the pandemic and the World Health Organization (WHO) declared the virus as “global pandemic”(6). Currently, America and Africa are being strongly affected. The evolution of the pandemic in the different regions of the world also determines in a significant way the type of responses provided by our partners, their level of affectation and surely the evolution of some of its most relevant indicators. Trends on which we will be paying attention in our next surveys and analyzes.
The COVID-19 crisis caused net slowdown to even impossibility of carrying out essential activities by our partners
82% of our partners reported having difficulty/impossibility to collect loan repayments as usual. This difficulty seems to impact partners from all regions but more significantly those located in MENA (100%), SSA (85%) and LAC (81%). The second most relevant difficulty, pointed out by 80% of our partners, is the impossibility of meeting clients in the field. Partners in the MENA region continue to be the most affected (100%), followed by those located in the EAC region (91%) and LAC (81%).
The third most relevant difficulty, manifested by 74% of our partners, relates to the disbursement of loans. This difficulty is a little more relevant among partners located in the MENA (89%), LAC (81%) and SSA (78%) regions.
On the other hand, for 94% of our partners, communication with clients does not seem to be a significant difficulty. This may be due, as detailed below, to the significant use of digital systems and technology for remote communication. Likewise, 94% of MFIs reported that their employees are not contaminated with COVID-19. This represents a very satisfactory result of the measures taken at the beginning of the crisis by our partners for the protection of their staff. (8)
MFIs have faced different financial difficulties due to COVID-19
For 91% of our partners, the increasing portfolio at risk is the most significant financial difficulty they have had to face due to the pandemic. This is a difficulty present in all regions and all sizes of MFIs, however, it concerns 100% in partners located in the MENA region, 93% in those present in SSA and Asia, 91% and 86% of those located in the EAC and LAC regions respectively.
The outstanding portfolio reduction is also a relevant difficulty for 80% of our partners. This is mainly important for 93% of those located in the SSA region and 86% of those present in LAC.
The increase in the costs of materials and equipment and the lack of liquidity were difficulties faced by 46% and 39% of partners respectively.
“We think we may not have adequate funds for disbursements end of June if the situation improves in the field” – Partner in South Asia
PAR 30 is already at this stage a major concern
80% of our partners indicated that their PAR 30 has increased due to the COVID-19 crisis. However, for 12% of the partners it has increased twice and for 25% of partners the PAR 30 has more than doubled. For 43% of the partners it has increased without being double. The partners mainly located in Asia, LAC and EAC are those who consider that their PAR 30 has increased without even reaching double, while most of the SSA partners reported an increase in PAR 30 of more than double, followed by partners in the MENA region.
Strategies used to mitigate the crisis: From credit restructuring to the use of technological means
Our partners implement different financial measures and operations to mitigate and adapt to the crisis. 75% of them, mainly those located in Asia (87%), have carried out the credit restructuring with their clients. 65% of partners have slowed down or stopped the disbursement of credits. This measure has been mainly implemented by partners located in the LAC region (78%) and less used by those located in the MENA region (44%).
“Analysis of rescheduling requests in order to be able to accompany them with emergency loans but this is really on a case-by-case basis”- Partner in West Africa
Another relevant strategy is the orientation of loans to clients in sectors less impacted by the crisis (for example, agriculture). This is a measure carried out by 51% of the partners, mainly those located in the SSA and EAC region. In addition, 50% give priority to repayment of credits.
Likewise, communication with customers is a priority strategy among our partners. 73% have increased communication with clients and 50% have hygiene awareness campaign for clients (by SMS, video, etc.).
Technology is used as an important tool to face the crisis. Partners use existing digital solutions (by 48% of partners) or new solutions (by 31% of partners) for communication with customers as well as the management of financial products and services.
“We plan to improve the use of digital approaches to service provision, help clients for product marketing and business diversifications (…)”- Partner in South Asia
Strategies for the management of human talent: From hygiene measures to the use of technological means
90% of the partners have made the provision of sanitary equipment to staff. Office hygiene and disinfection measures are carried out by 82% and 70% of partners, respectively.
The organization of work times and travels to the field is indicated as another measure of great importance. 71% of the partners, mainly those located in the MENA, LAC and Asia region, implemented telework as much as possible. 66% of partners restricted or prohibited movement in the field. 54% of the partners, mainly located in the MENA and LAC region, have reduced working hours and 52% of them have reduced customer service hours in the agencies.
The use of digital to maintain communication and work activities with employees is also relevant. 82% use online meeting solutions and 57% use an online document sharing solution (mainly MENA and LAC partners). In addition, 46% provided their employees with work laptops or tablets (mainly those located in the MENA region, 78%).
“We established 2 WhatsApp communication groups with the staff (one for Singhala speaking and one for Tamil speaking). Then we had regular communications with them during the lock down” – Partner in South Asia
Crisis management measures
It can be considered that our partners carried out two main types of measures to manage the crisis COVID-19 in a relevant way. The first group contemplates the development of the following internal actions for the analysis, monitoring and follow-up of the effects of the crisis: 78% of the partners established an ad hoc management committee to monitor the crisis. These measures were particularly priority among partners in the SSA and MENA region. 75% of the partners, mainly those located in the Asia and SSA region, prepared a Business Continuity Planning. 74% of the partners, primarily those located in the EAC and MENA region, updated the Liquidity Plan. Furthermore, 65% carried out worst-case scenario simulation, this action being carried out more in the MENA region than in the SSA region.
In the second group are management measures aimed at requesting support from third parties. 53% of partners, mainly those located in MENA and LAC, requested financial support from funders / partners. 52%, notably those located in the MENA region, negotiated with Lenders to arrange loan repayment. Additionally, 37% of partners, particularly those located in Asia and SSA, requested technical support from funders / partners. These three actions have been less developed by partners located in the EAC region, of which the request for technical assistance seems to be the least relevant.
Additional funding needs from lenders: What is expected in the coming months?
30% of our partners stated that they had no additional financing needs and 12% indicated that their needs have decreased. These responses come mainly from partners located in the EAC region.
In contrast, 58% of the partners indicated that they would need financing for amounts greater than expected. Of these, 28%, mainly those located in the Asia and MENA region, reported that they would need between> 0% and 20% more funds than expected. 24%, mainly those present at MENA, stated that they would need between 20% and 50%. And 6% of partners, particularly those located in Asia, reported that they would need> 50% more funds than expected.
Looking forward to the near future: new markets or products
At this stage, the majority of our partners, equivalent to 57%, expressed interest in focusing their activities more on the Agricultural sector. This purpose seems to be particularly more relevant among partners in the SSA, Asia and EAC regions. This may be due to the increase in the needs of customers in this sector or to its identification as one of the production sectors least affected by the COVID-19 crisis (aspects already envisioned in the articles elaborated by Inpulse and the Grameen Credit Agricole Foundation) (9).
This assumption will be important to investigate in the following survey since the Agricultural sector let converge relevant economic, social and environmental factors, such as the allocation of an important part of the portfolio of our partners; the generation of significant amounts of jobs in some countries and the potential negative effects of climate change.
On the other hand, 37% of our partners plan to launch financial education programs and 27% plan to focus more on female clients.
“We plan to promote digital education for women clients (digital culture)” – Partner in South America
These are sectors that are traditionally addressed in the microfinance sector, however, 25% of our partners also indicated the interest in launching “green” financial products related to environmental protection. Could this interest demonstrate the increased awareness of our partners about the environmental problems linked to their actions? Does this represent the boost of green microfinance due to the COVID crisis? What type of green products would our partners be targeting? These are questions that could also be relevant to investigate in our next survey.
In contrast, the launch microinsurance related to hygiene, life, health or environmental risks does not seem relevant among our partners. Finally, 22% of our partners do not plan at the moment to focus on new markets or develop new products.
(3) The regions and subregions addressed are: Asia (South Asia and South East Asia), EAC (Eastern & Southern Europe and Western and Central Asia), LAC (Caribbean, Central America and South America), MENA (Middle East and North Africa), SSA (Central Africa, East Africa, Southern Africa and West Africa).
(4) The total number of MFIs that responded to the survey for each region are Asia:15, EAC: 23, LAC: 36, MENA: 9, SSA: 27. For a total of number of 110 institutions.
(5) This classification corresponds to the one traditionally used in the microfinance sector, more information here
(6) “Propagation analysis and prediction of the COVID-19” here
(7) These measures according to Inpulse and the Foundation articles were mainly focused on hygiene awareness campaigns as well as teleworking
New signatories to protect microfinance from the Covid-19’s economic effects
In response to the health and economic crisis caused by the Covid-19, a group of lenders, platforms and key players of the inclusive financial sector committed to a common pledge: “Key principles to protect microfinance institutions and their clients in the Covid-19 crisis”. Initiated by the Grameen Crédit Agricole Foundation, this pledge was built in consensus between all original signatories. The objective is to protect both the microfinance institutions and their clients to ensure the continued access to funding in the best possible conditions and to look out for clients’ and staff well-being.
The pledge aims to guide stakeholders to better support microfinance institutions and vulnerable clients during this crisis. The main principles of the pledge are the pooling of available information, analyses and anticipations, as well as the concerted implementation of shared decisions. The signatories agree to coordinate policies, technical assistance and resources to help microfinance institutions in this unprecedented crisis.
Since its publication in May, six new organizations have signed the pledge. This initiative now counts 26 signatories active in Africa, Asia, Eastern Europe and Latin America: ADA, Alterfin, Azerbaijan Micro-finance Association, Bamboo Capital Partners, CERISE, CIDR Pamiga, Cordaid Investment Management, Crédit Agricole CIB India, CA Indosuez Wealth (Asset Management), Crédit Agricole S.A., European Microfinance Network, FS Impact Finance, GAWA Capital, Grameen Crédit Agricole Foundation, InFiNe.lu, Inpulse, Kiva, Luxembourg Microfinance And Development Fund, MCE Social Capital, Microfinance African Institutions Network, Microfinance Centre, Rabo Foundation, SIDI, SIMA, Social Performance Task Force and Whole Planet Foundation.
The signatories welcome additional stakeholders to join this common initiative. The coordination of efforts to support microfinance institutions’ actions is essential to overcome this crisis.
Microfinance institutions’ responsible approach to the effects of Covid-19
By Grameen Credit Agricole Foundation
Last April, Africa’s Pulse, an analysis published by the World Bank Group, estimated that economic growth in sub-Saharan Africa would fall from +2.4% to a level between -2.1% and -5.1%, which would constitute the first recession in the region in 25 years. This recession is expected to hit countries dependent on mining and oil exports, while countries without natural resources are expected to post slower but positive growth.
In permanent contact with its network of 80 partner microfinance institutions (MFIs) and social enterprises in 40 countries, the Grameen Crédit Agricole Foundation is continuing its work of collecting information, analysing and sharing its observations. The privileged testimonials of our partners enable us to continue our monitoring of the crisis and its consequences. In this last questionnaire we focused on two particular aspects: the operational adaptations of MFIs and the role of loan officers during this crisis.
The economic crisis has become a reality for the vast majority of microfinance institutions supported by the Grameen Crédit Agricole Foundation. Almost all of them have implemented massive maturity extension programmes to facilitate the economic recovery of their borrowers.
The loan officers of these institutions are the privileged point of contact between clients and microfinance institutions. They spend almost half of their working time studying requests for loan maturity extensions and implementing such extensions.
The institutions were quick to adopt programmes intended to reduce their costs while ensuring the social protection of their employees and safeguarding jobs. Only 12% of them have resorted to economic redundancies, which is relatively low compared to national averages. On the other hand, the institutions are postponing their recruitment programmes as well as a large part of their investments. They also seem to be seeking to direct their funding towards sectors that are now considered less risky. This is particularly the case in agriculture, in what is a recent phenomenon.
It remains to be confirmed and will be followed up closely in our next news items.By looking proactively for bulwarks against the crisis and by adopting responsible approaches, MFIs are on the right track: today’s innovative solutions can be tomorrow’s successes as well.
Institutions are henceforth focusing on risk management
Whereas the health crisis seems to be slowing down in the countries that have adopted the most effective measures, the plans for exiting from the lockdown point to a very gradual recovery in economic activity. Our latest results confirm what we have been observing for several weeks: a remarkable adaptability on the part of microfinance institutions in the face of an unprecedented crisis.
Nearly 90% of the institutions have set up a crisis committee, chaired by the Chief Executive Officer and bringing together the management committee, to steer the various decisions and deal with the effects of the crisis. This committee usually meets every week.
“[We created] a “Crisis Management Team” composed of the Executive Committee members and supported by the Chairperson of the Board whenever required. [We have] weekly meeting with the Board of Directors to update on the situation and validate the main decisions”– Partner in Myanmar
The effects of the crisis are now being felt by 81% of the partners surveyed, who report an increase in risks to their customer portfolio. The efforts of microfinance institutions are now focused mainly on responding to this challenge, to the detriment of other activities that are currently considered less essential (nearly one out of two were providing this type of service at the beginning of April, compared to one in three today). Intended to provide non-financial services (awareness and information campaigns, provision of equipment, etc.) this reduction in activity has fuelled strong growth in activities dedicated to credit restructuring.
“To support our clients during the coming months, proposition of suspension of principal and interests instalments to all customers that were not in PAR as of March 1st. To date, 75% of the customers called have accepted. The process will continue.” – Partner in Ivory Coast
Institutions are adapting on the financial and economic activity fronts
The table below shows the progression of the difficulties encountered and the mitigation measures implemented to address them.
On the financial front
Against this background, the volatility of currencies is weighing heavily on the treasuries of institutions: 64% of respondents outside the CFA Franc zone are thus faced with a strong devaluation of their local currency against the dollar. This devaluation has a direct impact on institutions that have taken on debt in that currency since the vast majority of them receive microcredit interest in local currency.
“The situation is becoming even worse with significant KGS devaluation over the last months, contributing to increase the hedging cost” – Partner in Kirgizstan
The information provided by our partners in this survey also confirms the quasi-mandatory measures taken by MFIs during the crisis: 67% of the MFIs surveyed have reduced or stopped microcredit disbursements. In the same proportion, institutions have started to restructure loans to small borrowers on a massive scale by granting maturity extensions of 3 months on average. These moratorium periods constitute a truly essential element of crisis management at all levels. Whether mandated by local regulators or proposed spontaneously by the MFIs, they enable borrowers to benefit from a reduction in charges before resuming their activities. Similarly, the many processes of maturity extensions for investors enable the MFIs to retain valuable liquidity in a period of uncertainty. The Grameen Crédit Agricole Foundation consequently granted numerous maturity extensions in April, in full and effective consultation with other lenders.
For all that, the crisis has not affected MFIs’ proactivity, but is encouraging them to adapt. To do so, some are looking for more resilient sectors in the current economic crisis. For example, we have noted that 40% of institutions are considering turning to the agricultural sector — a sector that has been rather neglected because it was considered riskier before the crisis. This point will be followed up in particular in the next questionnaires as this percentage seems to us to mark a notable change in attitude. This new direction is being considered by more than half of the MFIs whose agricultural loans do not exceed one third of their portfolio, but also by very rural and agricultural MFIs. It is still too early to say, but the current crisis could encourage institutions to discover traditionally neglected sectors.
“[We] move ahead with plans on Rural & Agriculture Finance” – Partner in Sierra Leone
On the economic activity front
As to economic activity, the difficulties in moving teams around are diminishing somewhat: 55% had difficulties in May, compared with nearly 80% in April. Conversely, group meetings are still banned, and such prohibitions are on the increase, which penalizes the relationship processes of the institutions, especially with clients who have no alternative to solidarity loans.
“Group meeting was weekly or bi-weekly for repayments and social network. Without group meeting you cannot enforce the repayment any more”. – Partner in Kenya
In social terms, only 12% of those surveyed have had to part with employees since the beginning of the crisis, which is quite low, however, compared to the national average growth in unemployment figures. Our partners seem to follow the first principle set up by SPTF (1) “Keep staff employed” according to which “today’s employees will be tomorrow’s assets”. For a large number of our partners, parting with employees in critical times seems to be more of a loss than a slight short-term economic gain. On the other hand, expectations are already weighing on the growth and development projects of our partners since almost one institution in two has put these ongoing recruitment projects on hold. This uncertainty weighs also on organisational projects, with 41% of the MFIs surveyed having decided to postpone this type of internal project.
The protection of staff is always a point of vigilance with 90% of the MFIs that continue to provide them with significant resources and remind them of barrier gestures. Since the beginning of the crisis, our partners have taken quick decisions to reduce the weight of their fixed costs and limit the risk of exposure to the health crisis: mandatory paid holidays (52%), teleworking (62%), team rotation, reduced working hours (57%) and reduced branch opening hours (52%). The level of progress in internal digitization in some institutions has favoured these organizational changes. This is particularly the case for our partners in Europe and Central Asia, who benefit from numerous electronic and online tools.
“Most of us from the head office have been working distantly, thanks to our proper remote IT system which enables all the departments continue smooth working.” – Partner in Georgia
The current crisis, which, as we have seen, limits the “business as usual” capacities of MFIs, has led us to explore how to adapt the job of loan officer, which is at the heart of the microfinance business. Certain tasks remain the same, particularly for MFIs in the least affected countries: loan disbursement (43%), repayment monitoring (38%) or client file analysis (43%).
The restructuring of loans in progress is taking an increasingly important place in the daily life of loan officers (43%), with the encouragement to use mobile payments (36%) and the drafting of amendments relating to maturity extensions (31%).
Just as in the retail banking sector, where the client officer has clearly demonstrated its importance in times of crisis, the loan officers of microfinance institutions are the privileged link for clients. 81% of respondents say that the key role of loan officers is to maintain contact with clients and/or credit group leaders.
“[We] maintain contact with all individual clients, group leaders and Village Bank Presidents through digital and phone channels.” – Partner in Zambia
“Strengthening client interaction by (smart) phone or other digital devices and collecting through group leader where possible.” – International MFI network
This essential and massive approach is to be favoured all the more as it is recognized by the Social Performance Task Force (SPTF) in its crisis management principles as being essential in times of client fragility. It is also worth noting that 33% of the MFIs have initiated surveys of their clients to gain a better understanding of their needs and propose adapted offers and services. For nearly half of the MFIs (43%), the advisors also play the role of “health advisor” by reminding them of good hygiene measures, which is the case in West Africa and Europe in particular.
”One of the best investments you can make right now is to maintain close contact with your customers. Many can’t make payments, but they are valuable assets just the same.” – SPTF
(1) STPF is a non-profit association that engages with stakeholders from the inclusive finance sector to develop and promote standards and good practices in social performance management.
An international coalition to protect microfinance institutions and their clients in the Covid-19 crisis
By the Grameen Credit Agricole Foundation
At the initiative of Grameen Crédit Agricole Foundation, a group of microfinance lenders and key players in inclusive finance worked on a set of principles to better support the microfinance sector in the health and economic crisis caused by the Covid-19. Grameen Crédit Agricole Foundation, ADA, Alterfin, Cerise, CIDR Pamiga, Cordaid Investment Management, Crédit Agricole CIB India, CA Indosuez Wealth (Asset Management), Crédit Agricole S.A., European Microfinance Network, FS Impact Finance, InFiNe.lu, Inpulse, Luxembourg Microfinance And Development Fund, MCE Social Capital, Microfinance Centre, Rabo Foundation, SIDI, SIMA and Social Performance Task Force are the first signatories of a common pledge that aims to support microfinance institutions and fragile clienteles during this crisis.
Worldwide, microfinance institutions provide financial and non-financial products and services to over 140 million low-income clients . Microfinance is key to finance income-generating activities, not only in the formal but also in the informal sector. In the Covid-19 crisis, both micro-enterprises in the informal economy and small businesses overall form an essential basis for social and economic recovery. Supporting microfinance institutions in this context is therefore of vital importance to protect the most vulnerable borrowers.
In response, this group took on the challenge and established a common pledge: “Key principles to protect microfinance institutions and their clients in the Covid-19 crisis”. It aims to guide lenders and other stakeholders to better support microfinance institutions and fragile clienteles during this crisis. It is inspired by best practices and tools of the microfinance sector, such as the work done by the Social Performance Task Force  and the IAMFI Microfinance Voluntary Debt Workout Principles .
In this pledge, the pooling of available information, analyses and anticipations, as well as the concerted implementation of shared decisions are the fundamental principles. The signatories agree to coordinate policies, technical assistance and resources to help microfinance institutions face the crisis. The objective is to protect both the microfinance institutions and their clients to ensure the continued access to funding in the best possible conditions and to look out for clients’ and staff well-being.
As individual obligations and mandates may influence the way the provisions of the pledge are implemented, it is not intended as a legally binding agreement. This is not a frozen document; it could be improved if necessary to better respond to the evolution of the crisis. The pledge’s signatories will maintain open communication with their peers, to share their decisions and to comply with these principles.
The signatories welcome additional stakeholders to join this common and engaged initiative. The involvement of private, public and solidarity players is key in the global assessment and support to the microfinance institutions’ actions. It is essential to reinforce the impact of financial inclusion to fight poverty in this unprecedented context.
 Microfinance Barometer 2019
 Charting the Course: Best Practices and Tools for Voluntary Debt Restructurings in Microfinance, IAMFI, Morgan Stanley, 2011. The document is available on Findev Gateway
Digital and microfinance sector in the face of the health crisis
By Grameen Credit Agricole Foundation
The deployment of an ad hoc observatory to monitor the effects of the health crisis in relation to 80 microfinance institutions (MFIs) and social business partners in some forty emerging countries enables us to collect information regularly so as to share it and draw the best lessons from it.
This week we have monitored more specifically how microfinance institutions used their digital channels to overcome their difficulty of direct contact with borrowers which traditionally takes place either in the MFI branch or in group meetings or even during the disbursement of funds (microfinance uses mostly cash when disbursing the borrowed sums) or the monitoring of the projects financed.
According to the survey we conducted in the beginning of April, 68% of partner microfinance institutions indicated that they have made greater use of digital channels to overcome contact difficulties, as a result of lockdown or group gathering prohibition measures. This strong growth in use observed in the traditional finance sector can be seen also in the microfinance sector which has had no alternative but to adapt.
The technological means and processes, including digital tools, are being developed rapidly by institutions of all sizes (the smallest with client portfolios of up to $10 million, and the largest well over $100 million). Since the beginning of the crisis, institutions have been producing business continuity plans, as the basis of new discussions and exchanges for their funding backers, in which they frequently include new digital applications.
For most institutions, the first step entails raising awareness among clients about the possibility of using remote payment methods. This step is implemented through SMSs (which are particularly suitable for 2G network coverage) but also through the social media – the telephone network permitting.
“[We] encourage clients through SMSs to utilize mobile money platforms for repayments as it is the safest mode at the moment.” – Partner in Uganda
”[We] start informing our clients by social media and SMS on possibility of repayment via terminals, mobile wallets, plastic cards and Internet banking” – Partner in Tajikistan
For many MFIs which did not yet have it in their range of services, the first process developed rapidly at the beginning of this health crisis was that of electronic money payments. This practice of remote payments is encouraged by many regulators, such as the Bank of Central African States (BEAC) for the countries under its authority or the Central Bank of West African States (BCEAO), which decided to reduce transfer and use fees for this form of currency. This implementation of remote payment is accompanied by mass mailings of information to clients to explain the new procedures.
“Sending bulky texts to customers to remind them how to use the mobile money code to make their loan repayments and also the hotline they can call for help or complaint.” – Partner in Uganda
These remote services enable customers to pay their instalments without having to travel (and therefore to use public transport) by using the pay station network of telephone operators which is generally dense and available even in rural areas.
The implementation of these means of payment also makes it possible to disburse loans to the electronic portfolios of clients, as the latter go to said pay stations not to pay their instalments but to obtain cash disbursements of their microcredits. The use of mobile money therefore makes it possible to continue the financing activity during a lockdown period.
“The Palestine Monetary Authority is urging all MFIs to start disbursing loans to income generating projects through digital channels with lower interest rate.” – Partner in Palestine
Yet, as astonishing as it may sound, this crisis is seen by some institutions as a real opportunity to accelerate the deployment of digital platforms and to launch new services in order to make headway in operational optimization and even excellence in customer relations. For the managers of these partner institutions, having to invest in digital tools for reasons that are “vital” for their institutions at this time seems to be a means of accelerating investment plans that they had been thinking about before the crisis broke out. It thus enables them to embark on modernizing their distribution mode and their processes, which has come as a pleasant surprise to us, even though we are well aware of the vitality and capacity for innovation of our partners.
“This was contemplated prior to the COVID issue […]. However, discussions are ongoing with regard to the possibility of [the mobile payment solution] being launched to all clients.” – Partner in Sri Lanka
“In times like this when anything can be a source of transmission for the deadly virus, it is prudent that less physical cash is handled. [We] used the opportunity to pilot [our platform] in order to look out for the shortfalls and the loopholes in the system.” – Partner in Ghana
The economies of certain countries that were already highly digitized, as is the case in East Africa, for instance, seem to be more resilient to the effects of the crisis. Microfinance institutions operating in these areas have shown remarkable adaptability. By way of example, the Kenyan economy, which is particularly open to payment, financing and investment operations using digital wallets, is running according to remote uses that minimize the risk of spreading the virus.
”Kenya is better prepared than others because of the high penetration of mobile money. The concept is accepted widely by the public” – Partner in Kenya
Many institutions tell us that they will be more structured and more effective in the aftermath of this crisis. These experiences, which are sometimes vital to the continuation of their activities, seem to be very useful to them for operational performance gains in the future.
”Our team will tailor mobile app to add a feature enabling to apply for loan restructuring remotely. […] We introduced a new criterion in our monitoring tool – “emergency (coronavirus)” meaning the loan officers will have to monitor their customers remotely, and get information and enter monitoring data into the software” – Partner in Kazakhstan
“The new strategy will focus on transforming [our] current mode of operations to embrace more digital solutions, decreasing the need for physical interactions between employees and customers, and replacing cash transactions with mobile payment functionalities.” – Partner in Georgia
These positive effects of digitization, which have been achieved by microfinance institutions thanks to forcibly imposed developments can also be found in social enterprises in our equity portfolio. The digitization of the operational processes is a very effective means for combatting the constraints of the lockdown for companies that have to deal directly with the public or with suppliers of raw materials. This is the case, for instance, of a Senegalese company which, thanks to digital payments, has managed to continue its milk collection and sale of dairy products and to generate growth that has exceeded the forecasts.
For another social enterprise specializing in drinking water treatment, the health crisis has also led to the development of home water delivery following an order placed online.
Our partners are aware that the use of digital technologies is not a global solution to all the issues raised by this systemic crisis. They expect their customers and their operations to run into economic recovery problems in fact, where the digital dimension can only be of an altogether relative help. Despite the more and more intensive use of digital channels, the commercial activity of microfinance institutions is slowing down. They are all focusing on providing guidance and support to their customers by taking care to cope with the increasing number of requests for maturity extensions, while maintaining risk control and a good operational quality.
In some areas, the supervisory authorities have issued directives or strong recommendations for MFIs to grant moratoria to their clients that could last for several months, which entails a very high level of activity for the institutions.
In the majority of the testimonials we have collected, however, the health crisis is seen as a sequence that requires the different Management Committees of our partners to give serious thought to the operational performance under constraint. Our partners are convinced that the experiences they have gone through and the solutions found to deal with the health crisis will prove very useful “the day after.”
Discover more articles on: COVID-19 Observatory.
International microfinance institutions anticipate the first effects of a recession
By Grameen Credit Agricole Foundation
The crisis is beginning to take its economic toll
A few days after our last publication, the impact of the coronavirus continues to expand and intensify. The milestone of one million infected people worldwide has been passed and new outbreaks of the epidemic are being confirmed.
In constant contact with its network of nearly 80 partner microfinance institutions (MFIs) in 40 countries, the Grameen Crédit Agricole Foundation continues its work of collecting information, analysing and sharing its observations. Over the past few days, we have focused our monitoring efforts on the consequences of the crisis and the work of the MFIs to deal with it. Such information is very important. It enables us to take the most relevant decisions at our level for the management of the Foundation, for the support of our partners and the effectiveness of our action as close as possible to their difficulties and anticipations. It also contributes to the sharing of information by and between the stakeholders of this sector who are getting collectively organized in these times of crisis.
The results we have obtained confirm the trends identified in the information provided in the first weeks: the crisis is very hard, undoubtedly beyond our initial forecasts in early March, but the resistance is being organized. The effect of the health crisis is systemic. No stress model had anticipated it. The response will therefore have to be systemic, too, if we want to avoid a major failure in this sector.
Small-scale outreach activities are sliding into recession
78% of our partners are seeing the first effects of the economic recession on their areas of activity.
In the first feedback we received, rural areas seemed to be escaping the first effects of the crisis, especially in food-producing regions. By now, irrespective of the size of the institutions (the smallest have a financing portfolio of less than $10 million, and the largest over $100 million)) and their geographic location, they are all, more or less, faced with similar problems: the inability to travel (74%), the drop in disbursements to borrowers (77%), and the ban on group meetings (63%) are the reasons most cited by our partners for the slowdown of their activity.
“As indicated in the first analysis, the expected direct impact (up to 6 months) is a possible deterioration in the quality of the portfolio in the tourism, transport and hotel sectors, as well as loans financed by remittances from abroad. A medium-term impact is also expected due to the general slowdown in the economy and the reduction of solvent customers.” – Partner in Georgia
More than a third of our partners are under almost total lockdown (36%) and the rest are adapting to restrictive pre-lockdown measures.
“[Our] activities have been significantly affected so far, with client businesses primarily affected by general public fears and more directly by the strict guidelines implemented by the government in an effort to control the spread of the virus. An increase in the cost of living is also expected […]. Imports are declining, production costs are going up. Kenya’s GDP is likely to fall and inflation will most probably rise, which will affect the country’s economy.” – Partner in Kenya
“We see that the government is taking increasing measures to limit travel and commercial activities. For example, a regional government has specified that all microfinance activities in the region should be suspended in April. We are getting similar requests from village authorities in other regions.” – Partner in Burma
Effects that now impact the accounts of institutions
These difficulties are starting to be reflected in the figures of MFIs. For instance, 74% of the institutions explain that their portfolio at risk (PAR 1) has increased compared with the end of 2019. This increase is currently contained to less than 10% in absolute value for 8 out of 10 institutions.
The institutions are clearly accelerating and intensifying the use of digital technologies in order to make up for the fact that sales teams cannot travel and organize out-of-pocket payments. For example, 68% of the respondents say they are making greater use of digital services to carry out their activities remotely.
Loan restructuring operations have already started in nearly one out of two MFIs (43%). The intervention announced by regulators and legislators in the financial sector is confirmed: almost half of the respondents (44%) are encouraged to take the initiative in proposing moratoriums and restructuring operations for the benefit of their borrowers (the countries which have imposed these measures include in particular Kazakhstan, Kyrgyzstan, Sri Lanka, Cambodia, India, Uganda, Burkina Faso, Rwanda, Senegal, DRC, Egypt, Morocco and many countries in Eastern Europe). New initiatives are also being considered such as the introduction of emergency products (such as minimum subsistence) in the coming months.
Institutions are implementing crisis plans
This systemic crisis calls for an in-depth review of MFI business planning and financing needs. Upon closer scrutiny, the increase in maturity extensions granted to borrowers does not yet translate significantly into additional financial resource requirements for the MFIs surveyed. At the time of the survey, 48% of them did not yet see any change in their liquidity needs compared with the projections made for the year, and a third even envisaged a decrease in their needs due to a significant drop in their activity.
At this stage, only one out of five MFIs (19%) is expecting an increase in its financial needs, linked to the increase in the price of inputs (seeds, fertilizers, raw materials …) which will trigger an increase in the financial needs on the part of borrowers, mainly in rural areas of our intervention territories. This prospective analysis has been spearheaded by the major international microfinance networks.
“In addition to the Covid-19 crisis, Kazakhstan has been affected by the sharp drop in oil prices which has weakened the national currency by 380 tenges to 445 to the dollar” – Partner in Kazakhstan
The responses from our partners reveal other factors of concern, in particular their ability to finance their activity: a quarter of them foresee a loss of value of their local currency against the dollar (26%) and a substantial increase in currency hedges in their future funding (23%). One out of five MFIs is already experiencing funding difficulties with their usual donors.
In order to be able to monitor the rise in risks and funding developments as closely as possible, more than half of the MFIs (55%) declare that they have finalized (or that they are in the process of doing so) a Business Continuity Plan that includes precise liquidity monitoring. This responsiveness is remarkable and such plans are an essential element in helping MFIs cope with and manage the consequences of the crisis.
Our analysis shows an apparent correlation in the quality of the Business Continuity Plans following the Coronavirus crisis and the past experience of a serious crisis that has already affected the MFI. The lessons learned from past crises thus seem to play a very important role in the resilience of institutions in the face of a crisis, be it financial, political, health, etc. Many less experienced institutions however also show a remarkable willingness to innovate and an equally remarkable capacity to anticipate.
Donors reacted very quickly also. Drawing on the lessons of past crises they have shown remarkable capacity in the past few weeks to intervene and anticipate in a sector that, all things considered, is still young. International lenders, foundations, investment funds, and local banks in all regions of the world are thus working on joint action plans. A number of meetings are being held around the world to get ahead of the crisis and absorb its effects that would be absolutely devastating without such awareness and rapid and determined commitment. There is agreement across the board on the need for effective information sharing and coordination by and between the various stakeholders. Donors are organizing their action around responses adapted to the funding needs of MFIs impacted by the crisis, but also by providing monitoring tools, technical assistance plans or training to strengthen the capacities of MFI teams in the face of a situation that is as sudden as it is exceptional.
All of these elements remind us to which extent this crisis is a shared concern for all microfinance stakeholders. The involvement and rigour of local institutions, the coordination of international networks, the support of public and private donors and the confidence of investors will be the key values of our collective capacity to overcome the challenge of this health tsunami.
Read more articles on : Covid 19 Observatory.
ADA releases a guide to ensure business continuity of MFIs during the crisis
The health and economic crisis generated by the Covid-19 strongly affects microfinance institutions and their clients. To support the microfinance sector in this very particular context, the NGO ADA pursues its mission to promote inclusion for all by leveraging its knowledge and expertise in risk management with a guide of good practices for the continuity of microfinance institutions.
Available in French, English and Spanish, this guide offers recommendations to microfinance institutions to organize crisis management and ensure business continuity.
The document can be downloaded from the ADA website, in a page exclusively dedicated to the management of the Covid-19 crisis, a space which offers partner articles, guidelines, testimonials and videos in order to provide a place to exchanges and sharing of experiences between professionals in the sector.
This guide describes certain points of attention for the analysis and the measures to be taken to organize appropriate crisis management and ensure business continuity in the face of the COVID-19 pandemic.
[INTERVIEW] “Life must go on, we should not lose hope”
Interview with Dara Huot, CEO, Phare Performing Social Enterprise
The CambodgeMag interviewed Dara Huot, Managing Director of Phare “Performing Social Enterprise”, partner of the Grameen Crédit Agricole Foundation. He expressed his concerns and hopes regarding the Phare Circus social enterprise.
Since March 17, performances of the Phare circus, one of the main attractions in Siem Reap, but also in Battambang, have been suspended …
Indeed, we had to apply a government decision taken against performance halls. Before that, we had implemented all the necessary measures to disinfect the premises between each performance and respect the distances between the spectators. The temperature was controlled for each person entering the tent, and distributors of alcoholic solution were located everywhere. However, the number of spectators was gradually decreasing. The government decree only precipitated a closure that would have been inevitable.
How did staff react to this closure?
Phare is a very large social enterprise, split between Siem Reap and Battambang. Here we have 40 artists and 70 employees. The Battambang school, which provides circus training, but also graphic animation, dance, painting and theater training, has 110 teachers for 1,200 students. When the closure was decided, we took the opportunity to resume our list of “things to do”, you know, all those little things that accumulate over time and that we generally reserve for the off-peak season.
We cleaned everything, redid the paintings, carried out all the maintenance work… And then, when we finished all this, everyone went home. The vast majority of the staff are from Battambang, so many have joined their families there. All the artists continue to train hard, for the resumption of the shows, but also for the next tours. Some have been canceled, but we hope to be able to carry out the one planned in France for this winter.
Are wages still being paid?
The full wages were paid throughout the month of March. As for April, the wages have been reduced by 50%, and this will be the case for the following months. It is unthinkable to leave our employees without any income, and we do not hesitate to draw on our cash for this. But how much longer can we continue like this? After 3 or 4 months, there won’t be enough money … Especially since we have to keep paying the rents.
Do your employees receive support from institutions?
No, it’s not like in France, where compensation is granted to people who find themselves unemployed. Nothing is planned for them here, and the situation is made worse by the fact that many employees have contracted debts with banks and microfinance organisations. The interest they have to pay back every month is very high, and I don’t see how they will manage. The only hope would be for more flexibility from these organisations in terms of reimbursement. Maybe cutting interest rates, spreading out the due dates or, why not, hanging them off until things get back to normal. A moratorium on rents could also allow many Cambodians to see the crisis pass. As it stands, paying off a loan, paying rent and supporting your family when you have a low salary or, worse, when you are unemployed will be a big problem for a whole part of the population.
How will this crisis change Siem Reap?
Since the city opened to mass tourism, that is to say twenty years ago, the number of visitors has only grown exponentially. The infrastructure did not necessarily follow. The environment has suffered a lot from the increase in traffic, waste is not always well managed, access to water and its quality are still problematic in certain districts. Electricity needs have increased, but there are still many cuts. Why not take advantage of this involuntary “break” to renew yourself, to question yourself and, thus, to embellish the city? We have to stay positive, try to see what we can get out of this ordeal. Life must go on, you must not lose hope, and continue to be positive despite the circumstances. More than ever, we must take care of ourselves and our loved ones, and stay strong. This is important for you, but also for those around you. Everyone hopes that this pandemic will last as short a time as possible. 2019 will have been a difficult year, and 2020 will be much worse. But we will get out of it, and come back, I hope, hardened by this ordeal. Although it will, of course, be very difficult to go up the hill.
The microfinance sector prepares to face health crisis’ effects
By Grameen Crédit Agricole Foundation
The COVID-19 virus continues to spread around the world with over 450,000 confirmed cases as of March 26, 2020. Governments, even those who deny it, are taking more and more stringent steps to contain the epidemic. As the situation evolves more quickly every day, microfinance players are preparing themselves to face this crisis by taking the first salutary steps.
Following its enquiry launched two weeks ago, the Grameen Crédit Agricole Foundation has established an observatory to constantly update the information collected through daily exchanges with its partner microfinance Institutions (MFIs). The goal is to better understand how to support them, but also to share its analysis with other financial players in the inclusive finance and development aid sector.
Adapting to slow the spread of the virus
MFIs quickly realised the health issue of the crisis. They immediately sought to adjust their operating methods to the contamination risks by adopting recommended barrier actions and launched awareness campaigns among customers and employees.
“Hand washing is mandatory in all branches, with the provision of buckets and soap for everyone entering the office. Hand sanitizers are provided over the counter for all customers who transact with cashiers. […] The process of acquiring protective masks for cashiers is underway. It is strongly recommended that all staff members experiencing symptoms stay at home during the follow-up. We strongly recommended all staff to avoid going to the branches in the light of developments, unless it is absolutely necessary.” – Partner in Sierra Leone
MFIs also had to adapt to decisions taken by local authorities to curb the spread of the virus. Organisations in the most risky areas were therefore forced to partially or completely cease their operations and to close some of their local agencies.
“All operations will be closed as of 12:00 noon on March 26, 2020, in accordance with the announcement made by the President on Monday, March 23 and to allow personnel to return home for the period of confinement. […] Disbursements to customers have been postponed until the end of the period of containment.” – Partner in South Africa
The vast majority of our partners have rapidly implemented teleworking or staff rotation systems. Faced with the numerous prohibitions on groupings, institutions are now working with a representative of solidarity-based credit groups and remain in contact with their customers through instant messaging services.
Digital solutions are particularly adapted to this context. They allow the continuation of microcredit disbursement activities and remote recovery. In a dairy in Senegal, for example, the payment for milk collection to breeders has not experienced any disruption because it has been done for a few weeks via a mobile phone payment device.
“We encourage by SMS our customers to use mobile payment platforms for refunds because it is the safest method of payment at this point in time.” – Partner in Uganda
If MFIs have been able to adapt quickly their operating methods, it is also the time to prepare for the looming economic slowdown. Crisis meetings are increasing in head offices, or through video conferences from managers’ homes, in order to set up continuity plans.
A growing number of countries are introducing new credit regulations to cushion the economic shock and the likely insolvency risk of vulnerable customers. Regulators are urging financial institutions to grant deferred payments to their crisis-affected customers, as well as to restructure loans. Such decisions are already beginning to be implemented.
“The government is also implementing measures to help local businesses, such as reducing interest rates. For example, the borrowing rate for secured loans has been lowered by 1%” – Partner in Myanmar
“The Central Bank of Kyrgyzstan has taken the following support measures: 1) cancel the accumulation of penalties for all borrowers; 2) review the conditions for repayment of loans and provide for a delay in payment of at least 3 months upon the borrowers request; 3) when restructuring loans related to changes in borrowers’ cash flows due to coronavirus, institutions should not consider them as bad debts if the cause is health crisis “- Partner in Kyrgyzstan
“The Central Bank has announced that financial institutions must accept all requests for deferrals until April 30.” – Partner in Kosovo
The microfinance sector shows a high degree of responsibility and maturity to face this global crisis. The partner institutions of the Grameen Crédit Agricole Foundation produce regular financial statements and forecast analysis of their financing needs in the coming months. Although we have not yet observed any particular increase, the evolution of portfolio at risk (PAR) levels is systematically subject to a very high degree of vigilance. Multiple exchanges between lenders, specialised non-governmental organisations and microfinance institutions are now organised daily.
The Grameen Crédit Agricole Foundation is in regular contact with its partners and colleagues in a reciprocal effort to pool ideas and resources. We share with our partners, with responsible investment players and with our peers our analysis and best practices implemented by microfinance institutions.
The pooling of available information, analysis and anticipations, and then the concerted implementation of shared decisions are principles that are vital today for our sector. At the cost of this transparency, this concertation and a necessary adaptation of our intervention principles, we should be able to overcome the effects of this exceptional health crisis, which could knock down many microfinance institutions, leaving fragile populations in desperate situations. Because we know the crisis will hit the most deprived populations in the first place. Hard. Let’s work together to live up to the issues of this humanitarian challenge.
Discover other articles at: Covid-19 Observatory.
How Coronavirus affects Microfinance sector
By Grameen Credit Agricole Foundation
Created in 2008, at the joint initiative of Crédit Agricole SA and Professor Yunus, founder of the Grameen Bank and 2006 Nobel Peace Prize, the Grameen Credit Agricole Foundation is a cross-business actor committed to promoting a better-shared economy.
Investor, funder, technical assistance provider and fund advisor, the Foundation has more than 80 partners (microfinances institutions and social business) and operates in around 40 countries with nearly 100 million euros in outstanding. The Foundation focuses on microfinance institutions that serve women and rural people. These institutions support approximately 4 million clients.
The Microfinance sector is exposed and concerned
On March 19th, according to the latest figures from Santé Publique France, the Coronavirus has reached 213,254 people worldwide. 8 843 deaths are to be deplored. After following announcements of the closings of many institutions and companies, confinement measures continue to be taken around the world. Africa and South America were not officially affected for a long time by the virus, but they now face the crisis with hundreds of cases.
The global sanitary crisis also became an economic crisis. Economic activities are extremely limited in all countries and stock exchanges have lost almost a third of their value in less than a month. Quite logically, the worldwide microfinance sector is also not immune.
For this reason, the Grameen Credit Agricole Foundation’s team launched a survey among its partners on March 11th in order to gather their first impressions and analysis, the impact on their clients’ activity, on their institution and their potential needs. We also took advantage of our regular interactions with our partners to obtain as much information as possible. All further information in this document come from these resources. 56 Micro Finance Institutions (MFIs) responded to our survey, out of 75 reached partners (75% participation rate) with the last answers received on March 19.
All our partners are expressing in their responses a real concern about the expected effects of this global health crisis.
Local government decisions are already impacting small income-generating activities
48% (27) of surveyed MFIs felt their clients are impacted by the coronavirus at the time of the survey, and 68% (38) of them think they will be in a near future. Thanks to a quick feedback, we learn that governments have decided to close schools, to close down non-essential activities, to restrict movement or to prohibit gatherings in Sri Lanka, Cambodia, Romania, Myanmar, Sierra Leone, Jordan, Mali and other operating countries. These changes are taking place everywhere today and very day new countries are added in that list.
Such decisions have a direct impact on our partners’ customers. First, many customers rely on imports for their business. Border closures and travel bans affect trading activities.
It should also be noted that concerns about the travel ban in China is affecting not only Asian countries but also African countries.
“As the border to China has been closed, some agricultural product prices are decreasing so our farmer clients aren’t getting good prices for their harvest.” – Partner from Myanmar
“We have customers who travel for purchases (China, Ivory Coast, Togo, Benin,..). Informal sector traders are afraid and this can affect their activities.” – Partner from Burkina Faso
The impossibility of gathering will also have an impact on all the operations that take place in markets and fairs. Merchants will not be able to carry out their activities. The travel ban will strongly affect global tourism. All activities relying on tourism will face many problems (stocks, lack of customers, refunds) as well as countries depending on remittances.
“If travel bans will continue due to increased coronavirus cases in Gulf region and Europe as
economy of Jordan is dependent on tourism income and money remittances from the Gulf” – Partner from Jordan
Finally, we had no feedback yet on the plans of local authorities regarding the adjustments to be made by the financial institutions in particular. The only compelling example we were provided is that of Palestine. Through 8 guidelines, the Palestine Monetary Authority urges financial companies to continue provide lending services to people to ensure the continuation of the commercial and economic cycle and also postpone the periodic monthly payments of all borrowers for the next 4 months’ period (6 months for tourism and hotel sector).
Also, no any additional fees, commissions, or interest on delayed instalments can be collected during the period.
MFIs activity could be reduced
59% (33 MFIs) of the surveyed MFIs mentioned that their activity was still not affected by the epidemic at the time. 23 MFIs (37%) were feeling concerned at the time of this survey, giving several explanations such as risk for field staffs, restricted movement, working from home.
One of the main concern is the prohibition of group meetings, which will affect all MFIs whose microfinance methodology is based on a group approach. Few partners are already adapting.
In some countries with no clear decisions yet, MFIs will have to postpone disbursements if their loan officers are unable to travel or will have to temporarily adapt their processes.
“During the emergency period until 29 May 2020 above, client centre meetings will not take place as usual. Instead, the ‘Pay and Go’ method has been put in place as follows: only group leaders, two to four persons per centre of some 15-20 clients usually, are requested to come to the usual centre meeting at the usual location. The group leaders are requested to collect the instalment of their respective group members”. – Partner from Indonesia
“We have set up a special procedure to meet members of the solidarity groups individually. We provide advice to clients on how best to deal with the situation” – Partner from Senegal
Our partners must also adapt to the situation for their own staff. The risks of virus transmission is an important factor to take into account for the activity of credit agents. Likewise, the confinement rules prevent the smooth running of the activity for all departments and operations. Some staff are already working from home in some MFIs.
“lmaty where HQ is located will be on quarantine from 19 March, employees will be working on distance” – Partner from Kazakhstan
“Field staff are at high risk of contracting, so they are hesitant to work on clients, a quarantine will hit and polarize the whole MFI market” – Partner from Uganda
Portfolio risk and liquidity needs are under scrutiny
Many concerns are raised about portfolio risk. According to our survey, at the time of answering, only 11 MFIs were noticing an increase in the portfolio at risk. African partners raised more concerns. However, when asked if they anticipate an increase in the portfolio at risk, 36 of the MFIs answer “yes” (64%). In this case, anticipation of a risk increase comes from all over our regions of activity.
“Potential increase in PAR30 and reduced credit demand. Estimate an increase of PAR30 not to go beyond 2% and portfolio growth to potentially slow down by around 20%” – Partner from Cambodia
However, some partners consider that they are no more at risk than usual. In most cases, these MFIs are those with a particularly rural customer base.
“In general, since our customers are rural residents (70%), we predict that they will not have a strong deterioration due to rising prices for their agricultural products. But we think that a clearer situation will appear in the second half of April.” – Partner from Kyrgyzstan
“As of 16 March 2020, our business continue as usual. We have not seen impact on loan payment yet across Cambodia include Siem Reap and Phnom Penh. However, we would expect some increase in Siem Reap from end of this month onward. Please note that our client are mainly living in rural areas. The exposure has on Tourist, hotel, services industry is minimal.” – Partner from Cambodia
Coronavirus is going to have an impact on liquidity needs. According to our survey, 29 MFIs (52%) forecast a change in their needs. Most Tiers 3 MFIs do not forecast changes as the time, as a majority of Tiers 2 MFIs (17 MFIs) do forecast such changes. MFIs expect problems on the funding side. In particular, hedging issues are expected, and discussions with all the different lenders are initiated.
“Mainly, the exchange rate has been very volatile, indirectly due to the epidemic, and this causes new disbursements in USD to exchange to less local currency which has affected the number of loans we can disburse” – Partner from Myanmar
Liquidity problems are also anticipated. Indeed, non-repayment could be a barrier to the possibility of disbursing new loans. Rising provisions for risk and potential losses is also a cause of the drought in liquidity.
“if the situation continues up to mid-year, we will need liquidity as most of the liquid assets will have been suppressed by high provisioning for impaired assets (Expected losses) due to increased non-repayment” – Partner from Uganda
“The non-repayment of loans leads to a decrease in liquidity. Yes, we have taken steps to limit a potential situation” – Partner from Mali
Microfinance sector needs specific measures
Some MFIs already asked the Foundation if there was a possibility of helping their institutions through the epidemic crisis.
“We would like further advice on how to avoid the disease and what treatments are available and effective for treatment in the event of infection” – Partner from Benin
“We would prefer that Grameen Credit Agricole Foundation compile information about corona virus coup up measures especially in regards to MFIs around the world on how to deal with the challenges” – Partner from Uganda
A partner recalled that during past natural disasters, there had been particularly suitable measures that had been implemented. Some, which may seem counter-intuitive, had given rise to an increase in funding to allow clients to recover from the shocks and overcome this difficult period. Draining funding would only intensify the difficulties and impacts of the crisis.