Microfinance in Eastern Europe Thrives Despite Global Financial Crisis

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Dec 2008
London, United Kingdom, December, 17 2008 - As financial markets struggle internationally and many financial institutions suffer from high default rates, the microfinance institutions in World Vision's Eastern Europe Region are proving that microfinance is far from a risky investment.

Although local economies are severely affected by the global economic downturn, the seven World Vision microfinance institutions (MFIs) in the Balkans and Caucasus maintain their high repayments at 98%.

'The main reason behind the continued strong portfolio quality is that the Balkans and Caucasus MFIs spread their portfolio over thousands of clients with an average loan size far below GDP per capita', explained Gerlof De Korte, VisionFund Regional Director for the Middle East & Eastern Europe Region (MEER).

Since clients predominantly live in rural, mostly agricultural areas and lack access to markets, they are quite insulated from global and even national economic trends.

Still, the economic crisis may yet affect World Vision MFIs and their clients. As local economies slump and unemployment and inflation rise, MFI clients will face reduced demand or at least a decline in real income.

Ironically the poor are often best prepared to deal with difficult situations as they are well adapted to living with very limited means.

'A critical task for the MFIs is to adjust their risk management to the changed circumstances and to ensure their clients have access to finance. The old joke about banks giving you an umbrella when the sun shines and taking it away once it starts to rain has a lot if truth in it, but the strategy of our MFIs is to help clients withstand any storm', says De Korte.

The MFIs are now preparing for a period of lower growth. Historical growth rates have been anywhere between 50% and 200% even for medium-sized institutions. The credit crunch will create challenges to raise sufficient capital to continue such growth rates, but on average growth is expected to be a respectable 20% in 2009. With their strong operational and financial performance, MEER MFIs are well-positioned to compete for the scarce financing opportunities.

In the long run, and as the market corrects itself, microfinance could become a hub to attract investment money, which was typically invested in traditional sectors. In fact, availability of funds for MFIs looks likely to increase, rather than decrease. As investors are seeking to diversify away from traditional financial markets, many have focused their attention on microfinance which proves to be a high-yield, counter-cyclical investment opportunity.

Of all the World Vision regions, the Middle East and Eastern Europe region has the largest loan portfolio value, showing a growth of 42.5% in portfolio, invested in more than 135,000 clients in Fiscal Year 2008. Microfinance impacted nearly 160,000 children in the same period.



Source : Reuters
 

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