Microfinance under the microscope

Last year I speculated about the potential impact of the financial crisis on the environment for microfinance. A report from the Economist Intelligence Unit (2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean) provided data on the microfinance premium—the difference between what mainstream banks and MFIs charge for a loan—in many countries in Latin America. How much would MFIs reliant on external funding get squeezed, and would they get squeezed worse than the banks?

The recently published 2009 Microscope (now expanded to 55 countries around the world with the assistance of IFC) gives a mixed answer. Of the 13 countries in Latin America for which there are data in both the 2009 and 2008 Microscope, seven saw their microfinance premiums rise while six saw their microfinance premiums fall (see image below the jump for the most recent premiums).

It's not clear that the financial crisis had much responsbility for the increased premiums even in these six countries. Rather, the authors of Microscope 2009 suggest rising premiums can be attributed either to uncompetitive microfinance markets or small and inexperienced MFIs. 

Of course, the funding side of things is only part of the story. The crisis may have had an impact on the performance of microfinance portfolios. But somehow I suspect that subprime entrepreneurs are a better bet than subprime mortgage borrowers.