Food Crisis Continues to Affect Microfinance Clients

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Dec 2008
Washington DC, United States, December, 17 2008 - Recent CGAP and USAID Publications Show Effects of Food Crisis on MFIs.

In the past several months, the Wall Street panic followed by the recession in rich countries’ economies and coupled with the steep drop in commodity prices could almost make one forget the dramatic effects of a global food crisis that has put many of the world’s poor at risk of falling deeper into poverty. In many developing countries, the effects of the food crisis are still being felt, and with a greater impact than the financial crisis. Why? Because when a family already spends 80% of their income on food and the prices double, the impact is immediate and acute and has long-term effects due to malnutrition.

In August 2008, CGAP surveyed managers of 45 leading MFIs in 21 of the 40 countries most affected by the food crisis. Over 56% of them saw their portfolio-at-risk (PAR) increase and for 40% of MFIs, expansion slowed down as clients struggled with exorbitant food prices. Survey findings showed that MFIs face a significant liquidity risk with lower income, declining deposit collection and rising expenses. About 50% of MFI managers interviewed said that clients affected by the food crisis saved less as they consumed more of their income to feed themselves. 70% of respondents indicated their expenses had increased as a result of the crisis. In addition, defaults increased for 35% of MFIs surveyed. The effects of the financial crisis can only exacerbate this liquidity risk.

An upcoming USAID study on the effects of the food crisis in Bangladesh, Haiti, Tanzania, and Nicaragua helps elucidate the negative implications of the food crisis on PAR. In Tanzania for example, PAR increased by 56% between 2006 and 2008. The study demonstrates the need for MFIs to adopt stronger risk management systems to better prepare for crisis in the future.



 

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