Microfinance in the Global Recession

by ALEXANDER KHOURY

“In hard and confused times, it pays to be little, flexible and simple.”
-Roberto 
Moro Visconti

     The ’08 financial crisis may have started in the United States, but its repercussions have influenced the entire world, including the countries that were already struggling to develop. In 2008 alone, the total investments from OECD countries to developing countries dropped by 40%.* Overnight, these countries saw widespread withdrawal of local deposits and greatly reduced access to outside capital. This meant that in order to finance their short-term debt they had to take out new loans with continually greater interest rates.

    The states were left with larger and larger debt burdens—and the more governments were forced to spend on debt the less they could allocate to essentials like education, health and security. Citizens also found themselves unable to afford the going interest rate and economic progress was brought to a screeching halt. However one subset of banking went against the grain.

     Microfinance-oriented institutions across the globe have been growing in spite of the dreadful state of the world economy. While traditional banks post theirlosses quarter after quarter and shut down, small-lenders provide much needed loans to locals and continue to return profits to their investors. This shows that microfinance can both provide funding when it’s most needed and be a powerful tool for investors to survive and grow in the depths of recession.

    Just look at Ecuador’s Banco Solidario which was onlytwo years old when the country began to spiral into its 1998 economic collapse. The bank recognized the need to innovate and took a chance by greatly increasing the amount it invested in small lenders. In two years these loans went from 10% of the total portfolio to almost 60%. By 2000 the bank had become more profitable than any other, and to this day it is ranked amongst the country’s top 5 institutions. Alex Silva, the CEO of a major shareholder in the bank, credited this success largely to the switch to smaller loans saying, “the institution’s
conviction is not only that smaller clients are more resilient and withstand crisis better, but also that their payment ethics are better than those of larger clients.”

    This goes to show that sometimes the right choice is also the smart choice. Investing in microfinance doesn’t just help the world’s poor; it provides investment security that is becoming increasingly rare in the modern world. This makes Oikocredit the perfect choice for a globally concerned generation that wants to ensure its own well being, while extending a hand to those who most need it. Where we save our money can have as much social impact as who we vote for so it is of utmost importance that our investments match our ideologies.

*http://www.microfinancegateway.org/gm/document-1.9.39138/MICROFINANCE%20PAPER-%20FINAL%20VERSION.pdf

*Disclaimer: The views represented here are the opinions of the individual blog author and do not represent the views of Oikocredit USA. 

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