Microfinance lenders' global exposure increasing: IMF paper

Fund study shows that microfinance lenders are becoming more affected by events in international markets post-crisis

An International Monetary Fund paper, published on Tuesday, finds that contrary to evidence before the crisis, the performance of microfinance institutions is correlated not only to domestic economic conditions but also to changes in international capital markets.

Gabriel Di Bella, the paper's author, analyses the performance of a large sample of top microfinance institutions against domestic economic conditions and international capital markets. The author argues that contrary to what was believed prior to the global financial crisis of 2007–08, the links of the microfinance industry with both domestic economic conditions and changes in international capital markets have grown stronger.

The author finds that correlations between microfinance's performance and both domestic and international economic conditions are stronger than previously found, in particular, microfinance institutions in Central America and the Caribbean, including Mexico, Eastern Europe, the Middle East and Central Asia.

The results suggest that the increasing attention that microfinance institutions have given to sustainablity, diversification in their funding structure towards more commercial sources, commercialisation of portfolios and increase in their scale have made them more similar to financial institutions with more traditional lending portfolios.

Click here to read the paper.

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