Analysing the impact of the COVID-19 crisis on microfinance institutions (MFIs)

The Covid-19 pandemic has hit the world hard, impacting fragile economies in particular, and calling on the entire microfinance sector to act in a responsible way.

As early as February 2020, the Grameen Crédit Agricole Foundation began to investigate the unprecedented effects of this global crisis on microfinance institutions (MFIs). An initial survey was launched by the Foundation in March among 75 institutions to understand how they were preparing and adapting to the impact of the pandemic.

In May 2020, ADA and Inpulse partnered with the Foundation to expand the scope of the study to more than 100 MFIs, which made it possible to cover almost all regions where microfinance is developed: Africa, South America, Asia and Europe. 6 waves of surveys were conducted since the inaugural questionnaire in March. The information was shared with stakeholders in the sector and helped to obtain a global vision of the situation and to provide more appropriate responses to it.

OPERATIONAL CONSTRAINTS
Surveys conducted throughout 2020 revealed three major difficulties: the impossibility of meeting clients in person, difficulties in collecting repayments and complications in disbursing loans.

FINANCIAL IMPACT
The operational constraints encountered have inevitably had significant financial repercussions. We observe two major consequences for almost all MFIs: an increase in the portfolio at risk (PAR) due to lower repayments, and a reduction in outstanding loans due to lower disbursements. Other problems have also arisen from time to time: temporary lack of liquidity, the impact of depreciating local currencies and a slowdown in disbursements from donors.

PROSPECTS FOR THE FUTURE
In the face of the crisis, most MFIs have shown resilience. Among the levers envisaged to return to financial stability: increasing the volume of their portfolio and the number of clients, and opening up to new products and services, and even to new markets, in 2021.

Analysing the impact of the COVID-19 crisis on microfinance institutions’ clients

From the very beginning of the crisis, actors in the inclusive finance sector felt the need to understand the situation of microfinance institution (MFI) clients. This led to questions like: Which client segments are most affected? How are they coping with the situation? What are they doing to adapt to the crisis? What are the solutions that MFIs could provide to better support them?  

To address this need, a sector-wide initiative was launched by the Social Performance Task Force (SPTF) to implement MFI client surveys. ADA encouraged its MFIs and MFI network partners to contribute to this initiative and helped launch surveys in 7 countries in Southeast Asia, Sub-Saharan Africa and Central America in 2020: Bhutan, Myanmar, Rwanda, Senegal, Togo, Cape Verde and El Salvador. These surveys were intended not only to collect information but also to inform and act. 

RESULTS
The results show that the crisis has negatively affected the income-generating activities of MFI clients: most have seen their income decline, and their household financial situations have consequently deteriorated. This was especially true during periods of severe restriction and throughout the crisis in urban areas. The crisis has also made MFI clients food-insecure: many have reduced both their consumption of highly nutritional foods and their number of meals per day. To cope with the decline in income, most clients resorted primarily to their own savings; few engaged in risky long-term coping strategies such as selling assets. 

Based on these results, concrete measures were taken by MFIs to respond to the needs of their clients, such as the distribution of health kits and food packs or the extension of loan repayment options. In the long term, several of them also aim to develop savings offerings, which have proven to be an effective way to increase clients’ resilience to economic shock. Finally, in some countries, these results have been shared with regulators to create dialogue on policy and to encourage the implementation of appropriate measures to support the microfinance sector. Listening and responding appropriately: this is the effort being undertaken by MFIs in this critical time of need.