Microfinance and Covid 19 a Framework for Regulatory Response

The COVID-19 (coronavirus) crisis endangers health and economic prospects across the globe. The outlook is especially sobering for the most vulnerable populations in developing countries. Informal workers, farmers, and microentrepreneurs are coming under severe financial stress brought on by the social distancing and lockdown measures taken to contain the outbreak. While poor people are resilient, many depend on microfinance services, including basic savings accounts, small loans, and remittances. Microfinance services afford clients a margin of flexibility to cope with emergencies when publicly funded safety nets fall short.

Microfinance providers (MFPs)—microfinance institutions and other regulated providers from banks to nongovernment organizations (NGOs)—face threats to their own existence. The diminished earning capacity of their clients threatens to undermine the strong repayment culture on which microfinance depends. Meanwhile, MFPs are rescheduling loans—voluntarily or by order of the authorities. Many are caught in a bind, with client repayments drying up and ongoing operational expenditure depleting reserves. Their ability to meet their own debt obligations and liquidity needs thus comes into question.

Categories: Recommended Readings
Author: Cgap