As the media contact for ACCION USA, I have the pleasure of speaking with journalists and other curious individuals about microfinance almost daily. With the recession shutting more small businesses than ever out of the bank financing sector, the topic has never been hotter. Everyone wants to know how microfinance institutions (MFIs) are faring during the worst economic period in the industry’s history.
FIELD at the Aspen Institute and Opportunity Finance Network (OFN), two of the most prominent though leaders in U.S. microenterprise development, answered that question nicely in the latest Webinar in their TrendLine series, Trends in Demand, Risk and Funding. Each organization tracked key impact statistics for their members and what they found inspired me a bit: despite tough times, MFIs are hopeful about 2010.
The Webinar and follow-up materials are available as downloads for those that are interested in the nitty gritty. But here’s what I found most interesting:
- OFN’s logical explanation for why loan “originations” (people asking about loans) have been falling. Most people I speak with assume that microloan applications have soared as bank capital has gotten harder to get. On the contrary, demand for loans has fallen across the sector as lending staff are spending more time to process “problem” loans–applicants with more credit issues than average–and less time on marketing and lead-generating activities in the field. Additional resources have also been funneled away from lending and towards developing loan products for applicants who don’t meet even microfinance guidelines.
- Fresh data on borrower risk. Today’s borrowers are risky business–loan loss rates have been steadily rising (that’s to say that loan repayment rates have been steadily decreasing) since 2008. That’s no shock when even America’s big businesses are suffering from low revenue–but the fact that 60% of MFI’s saw decreased repayment rates was a tough pill to swallow.
- The reminder that MFI’s have bottom lines, too. FIELD and AEO painted the current picture for microenterprise funding and access to capital and it’s not all bad. While the majority of organizations saw a decrease in assets because of those high loan loss rates–which must be booked as organizational expenses–only a quarter of organizations saw their ability to access capital from funders and loan capital lenders decrease.
So is the U.S. microfinance glass half empty or half full? 2010 will undoubtedly be a pivotal year for the industry, but this Webinar clearly showed that there are early signs of improvement.