CGAP Virtual Conference

This post is delayed, but I still wanted to draw attention to the CGAP Virtual Conference: Microfinance and the Financial Crisis that took place from Nov. 18^th-20^th.

The structure and concept of the conference was innovative in itself. I received an e-mail from a coworker, signed up for the conference online, and had access to a variety of perspectives and topics pertaining to the impact that the financial crisis has had on the sector. The virtual conference was an invaluable resource for me as a Research Associate because I could view the insights, anecdotes, questions, and frustrations from people all over the world and people involved in microfinance in various ways. There were representatives from all points of the spectrum; such as, larger organizations like the IFC, independent consultants, newly established MFIs, and people right here in Tamil Nadu like Hand in Hand. Access to such vital information in an informal context was beneficial to all. It was well run, organized, and productive. Whenever someone wrote an e-mail on a topic, it was sent to everyone that had registered. Instead of highlighting all of the major points from the conference, I would urge those who did not hear of it to first check out the initial questions raised to guide discussion : http://www.cgap.org/p/site/c/template.rc/1.26.3807 and to read the summary that was written at the end of the conference: http://www.cgap.org/p/site/c/template.rc/1.26.4301

(look at the sidebar).

One general parallel I would like to draw between the impact of the financial crisis on microfinance and larger institutions in the financial market is the basic requisite that organizations, of all sizes and objectives, should continuously strive to improve and identify the optimal way in which they can cater to their clients. This will improve not only their own sustainability, but will mitigate the larger scale repercussions on individuals who have less or no control over the resources diverted to them in a market that has proved to be extremely volatile at times. Although the financial crisis was detrimental to many, we must take it as an opportunity to question whether institutions actually have this objective in mind. As Chancellor Merkel said in the wake of the crisis, governments must "redirect the markets so they serve the people, and not ruin them". To reiterate, institutions in any sector must also push for this initiative and this is especially the case with microfinance because to many, this industry symbolizes how businesses can engage in poverty alleviation whether or not profit is involved. This conference was a constructive step in this endeavor. Many questions and points were raised to understand the role of each player in meeting the needs of clients whatever their specific objective may be and an overarching consideration was savings: “The most immediate concern is how the global liquidity contraction will affect the cost and availability of funding to non-deposit taking MFIs. Money from both domestic and international banks is tighter, slower, more conservative and more expensive. Anecodotal evidence cites rate increases from 1% to 4% in Latin America and South and Central Asia, with some banks pulling out altogether.” Also, “The strongest message from the conference was that deposit taking MFIs are well-insulated from refinancing risks. The many savings-led African institutions have little need for external funds”

It was also widely stated that institutions can best identify and meet the needs of clients if the aim is incorporated to all levels of operations: “Advice to MFIs from conference participants included: increase reserves, cut back on growth and focus on portfolio quality, make sure loan officers are informed and attentive to clients needs, and communicate early and often with lenders and investors.” But, some of this advice goes beyond just MFIs; not surprisingly, we are witnessing many institutions that are tightening credit and accumulating savings. As Diana Henriques wrote in her article, Unlike Consumers, Companies are Piling Up Cash, in March, 2008 in the NY Times: “But, with the debt-burdened American consumer cutting back, wouldn’t the risk of a recession decline if companies with overstuffed wallets took their cash out and spent it?

Emphatically not, said Professor Stulz. Research strongly suggests that companies are holding more cash because they need it to operate more safely in a risky environment, he said.”