What we must do to ensure development-focused microfinance organisations survive the COVID-19 pandemic

by 28th Apr 2020
People stand in line at Umutanghua Lending Bank, Rwanda People stand in line at Umutanghua Lending Bank, Rwanda

Microfinance organisations serve approximately 140 million low-income people around the world. And the vast majority of these are women (roughly 80%), who live in rural areas (roughly 65%) . At the end of March when the world was starting to wake up to the harsh social and economic realities of the COVID-19 pandemic, a significant number of these institutions suddenly found themselves wondering if/how they were going to survive this global crisis.

The microfinance sector has faced crises before – the financial crisis of 2007-8 or the Ebola outbreak of 2014-16 for example – but never has the sector faced a simultaneous crisis in its own access to funding and that of their clients. The very global nature of the current outbreak has meant that not only has access to funding from national and international sources become incredibly challenging, if not impossible, for microfinance organisations to access but strict lock down measures have had an immediate impact on their revenues as their clients (a large majority of whom are small business owners, often operating in informal markets) lost their income-generating activities literally overnight. And as microfinance clients flock to withdraw their savings (from microfinance institutions that are allowed to take deposits), the triple hit on funding, revenue and cash, has put a lot of microfinance oganisations in a very precarious position.

Microfinance organisations serve approximately 140 million low-income people around the world. And the vast majority of these are women (roughly 80%), who live in rural areas (roughly 65%) . At the end of March when the world was starting to wake up to the harsh social and economic realities of the COVID-19 pandemic, a significant number of these institutions suddenly found themselves wondering if/how they were going to survive this global crisis. The microfinance sector has faced crises before – the financial crisis of 2007-8 or the Ebola outbreak of 2014-16 for example – but never has the sector faced a simultaneous crisis in its own access to funding and that of their clients. The very global nature of the current outbreak has meant that not only has access to funding from national and international sources become incredibly challenging, if not impossible, for microfinance organisations to access but strict lock down measures have had an immediate impact on their revenues as their clients (a large majority of whom are small business owners, often operating in informal markets) lost their income-generating activities literally overnight. And as microfinance clients flock to withdraw their savings (from microfinance institutions that are allowed to take deposits), the triple hit on funding, revenue and cash, has put a lot of microfinance oganisations in a very precarious position.

Financial service providers who serve low-income and vulnerable communities, play a critical role in the cash management of millions of households around the world. Whether it be access to small loans to boost income generating activities, savings facilities to provide security during times of emergency or a mechanism through which to send and receive money; poor households rely on these services as much as anyone else. And right now, there is a very real risk that those institutions who’s mission it is to serve the most under-served are at most risk of not surviving this COVID-19 pandemic. Those very institutions we are proud to call our partners.

So what can/must we do?

  • Give our microfinance partners who are impacted by COVID-19 a moratorium on loan repayments. 80% of our partners have already given their own customers a repayment holiday and we have made the decision to not only support these partners but give a repayment holiday to any of our partners who have requested it. Even those who have not applied a blanket repayment holiday across their loan portfolio, will be managing a risky loan book and having to make difficult decisions about loan restructuring and repayment pauses.
  • Identify those partners who are most at risk of facing a liquidity crisis and provide grant funding where appropriate. Since the beginning of this crisis, we have been in regular contact with all of our local microfinance partners, collecting information on the impact on their operations and the broader regulatory environment. We very quickly launched a Small Business Solidarity Fund and we are now in a position to start receiving funding proposals from our partners.
  • Make sure our partners’ responses to the crisis remain customer focused. The immediate liquidity crisis that some of our partners will be facing, might make crisis management quite inward looking. However, survival and certainly any successful recovery from this crisis is deeply dependent on a strong and sincere relationship between the microfinance organisation and its customers. A customer-focused crisis strategy will enable our partner organisations to properly understand the impacts of COVID-19 on their customers lives, including what immediate support they might need, as well as put them in a strong position to help once lockdown measures are lifted and activities resume. It is also the moral obligation of any microfinance organisation that has at its heart a mission to serve low-income and vulnerable communities.
  • Work with other social investors to ensure national regulators do not forget about the microfinance sector and put pressure on them to ensure financial service providers, especially the smaller, more development focused ones, are included in any assistance packages.

It has been said that “if the microfinance sector is going to survive the pandemic, we need to treat COVID-19 as the fundamental threat to the industry that it likely is.” So we owe it to the 140 million low-income people that rely on this industry, to help it survive.

Nancy Thomas

As Lendwithcare Executive at CARE International UK, Nancy supports the management and expansion of CARE's microfinance programme, Lendwithcare. Her role includes identifying new microfinance partners for the Lendwithcare programme, monitoring and evaluating its existing partnerships and exploring ways to develop CARE's Financial Inclusion work through the Lendwithcare platform.

Nancy has a Master's in Chinese Studies from the School of Oriental and African Studies where she completed her thesis on the impact of peer-to-peer microloan platforms in China. Before joining CARE, Nancy lived and worked in Beijing, China.