New signatories to protect microfinance from the economic effects of Covid-19

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In response to the health and economic crisis caused by Covid-19, a group of donors, platforms, and key stakeholders in the inclusive microfinance sector have established a joint commitment: "Key Principles to Protect Microfinance Institutions and Their Clients in the Covid-19 Crisis." At the initiative of the Grameen Crédit Agricole Foundation, this commitment was developed in consensus with all the initial signatories. The objective is to protect both microfinance institutions and their clients to ensure continued access to financing under the best possible conditions and to ensure the well-being of clients and staff.

The commitment aims to guide stakeholders in better supporting microfinance institutions and vulnerable clients during this crisis. The core principles of this commitment are the sharing of available information, analyses, and anticipations, as well as the concerted implementation of shared decisions. The signatories agree to coordinate policies, technical assistance, and resources to help microfinance institutions cope with this unprecedented crisis.

Since its publication in May, six new organizations have signed the pledge. This initiative now has 26 active signatories in Africa, Asia, Eastern Europe, and Latin America: ADA, Alterfin, Azerbaijan Microfinance Association, Bamboo Capital Partners, CERISE, CIDR Pamiga, Cordaid Investment Management, Crédit Agricole CIB India, Crédit Agricole Indosuez Wealth (Asset Management), Crédit Agricole SA, European Microfinance Network, Grameen Crédit Agricole Foundation, FS Impact Finance, GAWA Capital, InFiNe.lu, Inpulse, Kiva, Luxembourg Microfinance And Development Fund, MCE Social Capital, Microfinance African Institutions Network, Microfinance Center, Rabo Foundation, SIDI, SIMA, Social Performance Task Force, and Whole Planet Foundation.

The signatories invite other stakeholders to join this joint initiative. Coordinating efforts to support the actions of microfinance institutions is essential to overcome this crisis.

Download the commitment

Responsible approaches of institutions to the effects of Covid-19

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By Grameen Crédit Agricole Foundation

Last April, the Africa's Pulse study, a journal of the World Bank Group, estimated that economic growth in sub-Saharan Africa would fall from +2.4% to a range of between -2.1% and -5.1%, which would constitute the first recession in the region in 25 years. This recession is expected to hit countries dependent on mining and oil exports, while countries without natural resources are expected to show slower but positive growth.

The Grameen Crédit Agricole Foundation, in constant contact with its network of 80 partner microfinance institutions (MFIs) and social enterprises in 40 countries, continues its work of collecting information, analyzing, and sharing its observations. The privileged testimonies of our partners allow us to continue monitoring the crisis and its consequences. In this latest questionnaire, we focused on two specific aspects: the operational adaptations of MFIs and the role of loan officers during this crisis.

In summary

The economic crisis has become a reality for the vast majority of microfinance institutions supported by the Grameen Crédit Agricole Foundation. Almost all of them have implemented massive loan deferral programs to facilitate their borrowers' economic recovery.

The loan officers at these institutions are the primary point of contact between clients and microfinance institutions. They spend nearly half of their working hours reviewing and implementing loan deferral requests.

Institutions quickly adopted programs to reduce their burdens, ensuring the social protection of their employees and safeguarding jobs. Only 12% of them carried out redundancies, which is relatively low compared to national averages. However, institutions are postponing their recruitment programs and a large portion of their investments. They also appear to be seeking to direct their funding toward sectors currently considered less risky. This is particularly the case with agriculture. This observation is recent. It remains to be confirmed and will be closely monitored in our upcoming news updates.

By proactively seeking ways to counter the crisis and ensuring responsible approaches, MFIs are on the right track: today's innovative solutions could also be their successes tomorrow.

Institutions are now focusing on risk treatment

While the health crisis appears to be stalling in countries that have adopted the most effective measures, lockdown exit plans suggest a very gradual recovery in economic activity. Our latest results confirm what we have been observing for several weeks: the remarkable adaptability of microfinance institutions in the face of an unprecedented crisis.

Nearly 90% institutions have established a crisis committee, chaired by the Director General and including the Executive Committee, to oversee various decisions and address the effects of the crisis. This committee generally meets weekly.

“We have created a ‘crisis management team’ composed of members of the executive committee and supported by the chairman of the board whenever necessary. We have a weekly meeting with the board of directors to take stock of the situation and validate key decisions.” – Partner in Myanmar

The effects of the crisis are now being felt by 81% of the partners surveyed, who report an increase in risks to their client portfolio. Responding to this risk is now focusing the bulk of microfinance institutions' efforts, to the detriment of other activities now considered less essential (nearly one in two of them provided this type of service at the beginning of April, compared to one in three today). This reduction in activity aimed at providing non-financial services (awareness campaigns, information campaigns, equipment supply, etc.) is allowing for strong growth in activities dedicated to credit restructuring.

“To support our customers over the coming months, we are proposing the suspension of principal and interest payments to all customers who were not in the at-risk portfolio as of March 1. To date, 75% of the customers contacted have accepted. The process will continue.” – Partner in Ivory Coast

Institutions are adapting financially and operationally

The table below shows the progression of the difficulties encountered and the mitigation measures implemented to address them.

On the financial level

Currency volatility in this context is weighing on institutions' treasuries: 64% of respondents outside the CFA Franc zone are facing a sharp devaluation of their local currency against the dollar. This devaluation directly impacts institutions that have borrowed in this currency, since they themselves receive the vast majority of microcredit interest in local currency.

“The situation is further aggravated by the significant devaluation of the KGS in recent months, which contributes to increasing the cost of currency hedging” – Partner in Kyrgyzstan

The information provided by our partners in this survey also confirms the quasi-mandatory measures taken by MFIs during the crisis: 67% of the MFIs surveyed reduced or stopped microcredit disbursements. A similar proportion of institutions began massively restructuring loans to small borrowers by granting payment deferrals of 3 months, on average. These moratorium periods constitute a truly essential element of crisis management, at all levels. Whether mandated by local regulators or spontaneously proposed by MFIs, they allow borrowers to benefit from a reduction in costs before resuming their activities. Similarly, the numerous processes for deferring investor repayments allow MFIs to conserve precious liquidity in a period of uncertainty. The Grameen Crédit Agricole Foundation, for example, granted numerous payment deferrals in April, in close consultation with other lenders.

The crisis, however, has not affected MFIs' proactivity and is encouraging them to adapt. To this end, some are seeking more resilient sectors in this context of economic crisis. Thus, we noted that 40% of institutions are considering moving into the agricultural sector, whereas this sector was rather neglected because it was considered riskier before the crisis. This point will be particularly monitored in future questionnaires, as this percentage seems to us to mark a notable change in attitude. This new direction is being considered by more than half of MFIs whose agricultural loans do not exceed a third of their portfolio, but also by very rural and agricultural MFIs. It is still too early to say, but the current crisis could encourage institutions to discover traditionally neglected sectors.

“We are moving forward with plans on rural and agricultural financing” – Partner in Sierra Leone

In terms of activity

Regarding activity, the difficulties of team travel are tending to ease somewhat: 55% experienced difficulties in May compared to nearly 80% in April. On the other hand, group meetings are still prohibited, and the ban is growing, which penalizes the institutions' relational processes, primarily with clients who have no alternative to solidarity loans.

“Group meetings were held weekly or bi-weekly for reimbursements and social gatherings. Without a group meeting, you can no longer demand reimbursement.” – Partner in Kenya

On the social front, only 12% of respondents have had to lay off employees since the start of the crisis, which is, however, quite low compared to national averages for growth in unemployment figures. Our partners seem to be following the first principle established by SPTF (1) "Keep staff employed" according to which "today's employees will be tomorrow's assets". For a large number of our partners, parting with employees during a critical period seems like a greater loss than a slight cyclical economic gain. On the other hand, expectations are already weighing on our partners' growth and development projects, since nearly one in two institutions has put these current recruitment projects on hold. This uncertainty is also weighing on organizational projects, with 41% of the MFIs surveyed having decided to postpone this type of internal project.

Staff protection remains a key focus, with 90% MFIs continuing to provide significant resources and remind them of barrier gestures. From the start of the crisis, our partners made rapid decisions to reduce their fixed costs and limit the risk of exposure to the health crisis: mandatory paid leave (52%), teleworking (62%), team rotation, reduced working hours (57%), and reduced branch opening hours (52%). The level of progress in internal digitalization at certain institutions has encouraged these organizational changes. This is particularly the case for our partners in Europe and Central Asia, who benefit from numerous electronic and online tools.

“Most of us at headquarters are working remotely, thanks to our own remote IT system that allows all departments to continue working seamlessly” – Partner in Georgia

The current crisis, which, as we have seen, is limiting MFIs' "business as usual" capabilities, has led us to study the adaptation of the loan officer profession, at the heart of the microfinance business. Some missions remain the same, particularly for MFIs in the least affected countries: loan disbursements (43%), repayment monitoring (38%), or client file analysis (43%).

The restructuring of ongoing loans is taking an increasingly important place in the daily lives of credit officers (43%), with the encouragement to use mobile payments (36%) and the drafting of amendments linked to deferred repayments (31%).

Just as in the retail banking sector, where the relationship manager has demonstrated their importance during times of crisis, loan officers in microfinance institutions are the primary contact for clients. 81% of respondents stated that the essential role of loan officers is to maintain contact with clients and/or credit group leaders.

We maintain contact with all individual clients, group leaders, and village bank presidents through digital and telephone channels. – Partner in Zambia

Strengthen interaction with clients via (smart) phone or other digital devices and carry out collections through the group leader if possible – International MFI Network

This essential and massive approach is all the more important since it is recognized by the Social Performance Task Force (SPTF) in its responsible crisis principles, as being essential in times of customer fragility. It should also be noted that 33% of the MFIs have initiated surveys with their clients to better understand their needs and offer suitable offers and services. For almost half of the MFIs (43%) the advisors also have the role of "health advisor" by reminding people of good hygiene measures, this is particularly the case in West Africa and Europe.

“One of the best investments you can make right now is to maintain close contact with your customers. Many can't make payments, but they're still valuable assets.” – SPTF

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(1) SPTF is a non-profit organization that engages with inclusive finance stakeholders to develop and promote social performance management standards and best practices.

An international coalition to protect microfinance institutions and their clients in the Covid-19 crisis

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©Philippe Lissac

At the initiative of the Grameen Crédit Agricole Foundation, a group of donors and microfinance platforms has developed a set of principles to better support the microfinance sector during the health and economic crisis caused by Covid-19. Grameen Crédit Agricole Foundation, ADA, Alterfin, Cherry, CIDR Pamiga, Cordaid Investment Management, Crédit Agricole CIB India, CA Indosuez Wealth (Asset Management), European Microfinance Network, FS Impact Finance, InFiNe.lu, Inpulse, Luxembourg Microfinance And Development Fund, MCE Social Capital, Microfinance Center, Rabo Foundation, SIDI, SIMA And Social Performance Task Force are the first signatories of a joint commitment aimed at supporting microfinance institutions and vulnerable clients during this crisis.

Globally, microfinance institutions provide financial and non-financial products and services to more than 140 million low-income clients [1]. Microfinance plays a vital role in financing income-generating activities in both the formal and informal sectors. In the context of the Covid-19 crisis, microenterprises in the informal economy and small businesses are a key component of economic and social recovery. Supporting microfinance institutions in this context is therefore of paramount importance to protect their most vulnerable borrowers.

Faced with these challenges, a group of donors and microfinance platforms have taken up the challenge and established a common commitment: “ Key principles to protect microfinance institutions and their clients in the Covid-19 crisis ". It aims to guide donors and other stakeholders to better support microfinance institutions and vulnerable clients during this crisis. It draws on best practices and tools from the microfinance sector, such as the work carried out by the Social Performance Task Force [2] and the IAMFI Principles on Debt Rescheduling in Microfinance [3].

The fundamental principles of this commitment are the pooling of available information, analyses, and anticipations, as well as the concerted implementation of shared decisions. The signatories agree to coordinate policies, technical assistance, and resources to help microfinance institutions cope with the crisis. The objective is to protect both microfinance institutions and their clients, ensuring continued access to financing under the best possible conditions and ensuring the well-being of clients and staff.

Given that individual obligations and mandates may influence how the commitment's provisions are implemented, this is not a legally binding agreement. It is not a fixed document; it could be improved as needed to better respond to the evolving crisis. Signatories to the commitment will maintain open communication with their peers to share their decisions and adhere to these principles.

The signatories invite other stakeholders to join this joint and committed initiative. The involvement of private, public, and solidarity-based actors is central to monitoring and supporting the actions of microfinance institutions worldwide. Strengthening the impact of financial inclusion is essential to combating poverty in this unprecedented context.

Download the commitment

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[1] Microfinance Barometer 2019
[2] //sptf.info/resources/covid19
[3] Charting the Course: Best Practices and Tools for Voluntary Debt Restructurings in Microfinance, IAMFI, Morgan Stanley, 2011. The document is available on Findev Gateway  

Digital and the microfinance sector in the face of the health crisis

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By Grameen Crédit Agricole Foundation

Karel Prinsloo

The establishment of an observatory dedicated to monitoring the effects of the health crisis in conjunction with 80 partner microfinance institutions (MFIs) and social business enterprises in around forty emerging countries allows us to regularly collect information to share and draw the best lessons from it.

This week we have been focusing on how microfinance institutions are using digital channels to overcome the difficulty of direct contact with borrowers, which traditionally takes place either in branches, during group meetings, or during fund disbursements (microfinance overwhelmingly uses cash when handing over borrowed sums) or monitoring funded projects.

In our survey conducted in early April, 68% of our partner microfinance institutions indicated that they had increased their use of digital channels to overcome contact difficulties, as a result of lockdown measures or bans on group meetings. This strong growth in usage observed in the traditional finance sector is therefore also observed in the microfinance sector, where the industry is adapting at a rapid pace.

Technological means and processes including digital tools are being rapidly developed by Institutions of all sizes (the smallest having client portfolio sizes less than 10 million $, the largest well in excess of 100 million $). Since the beginning of the crisis, institutions have been producing business continuity plans, the basis for new discussions and exchanges with their funders, in which they very frequently include new digital uses.

For most institutions, the first step is to raise customer awareness about the possibility of using remote payment methods. This step is implemented through SMS messages (particularly suitable for 2G network coverage) but also through social media, when the telephone network allows it.

“[We] encourage SMS clients to use mobile money platforms for repayments as it is the safest mode at the moment” – MFI in Uganda

“[We] are starting to inform clients through social media and SMS about the possibility of repayment via terminals, mobile wallets and internet banking” – MFI in Tajikistan

For the many MFIs that did not yet have it in their range of services, the first process that was quickly developed at the start of this health crisis was that of paying installments by electronic money. This practice of remote payments is encouraged by many regulators, this is particularly the case of the Bank of Central African States (BEAC) for countries under its authority or the Central Bank of West African States (BCEAO) which decided to reduce the transfer and use fees for this form of currency. This implementation of remote payment is accompanied by mass sending of information messages to clients to explain these new modalities.

“We send numerous SMS messages to our clients reminding them how to use the mobile money code to make their loan repayments and the hotline they can call for assistance or complaints.” – MFI in Uganda

These remote services allow customers to pay their installments without having to travel (and therefore use public transport) by using the network of telephone operators' payment kiosks, which are generally dense and present even in rural areas.

The introduction of these payment methods also now allows for the disbursement of loans to customers' electronic wallets, with customers visiting these same kiosks not to pay their installments but to obtain cash disbursements for their microcredits. During the lockdown period, the use of electronic money therefore allows financing activities to continue.

“The Palestinian Monetary Authority urges microfinance institutions to provide low-interest loans to finance income-generating projects through digital channels” – MFI in Palestine

Yet, surprisingly, this crisis is being experienced by some institutions as a real opportunity to accelerate the implementation of digital platforms and the launch of new services to gain operational optimization or even relational excellence. For the leaders of partner institutions, having to invest in digital tools for reasons that are now "vital" for their institutions seems to them to be a way to accelerate investment plans that they were thinking about before the crisis. It thus allows them to immediately begin the modernization of their distribution model and their process, which has not failed to surprise us very favorably even though we know the vitality and capacity for innovation of our partners.

“This had been considered before the COVID issue […]. However, discussions are now underway regarding the possibility of launching [the mobile payment solution] accessible to all clients” – MFI in Sri Lanka

“In times like these, when everything can be considered a vector for the transmission of the virus, it is prudent to reduce cash handling. [We] have therefore taken advantage of this crisis to improve [our digital platform] to detect gaps and reduce flaws in our system” – MFI in Ghana

The economies of some countries that were already highly digitalized, such as those in East Africa, appear to be more resilient to the effects of the crisis. Microfinance institutions operating in these areas have demonstrated remarkable adaptability. For example, the Kenyan economy, which is particularly open to payment, financing, and investment transactions through electronic wallets, operates remotely, minimizing the risk of spreading the virus.

“Kenya is better prepared than other countries because of the high penetration of mobile money. The concept is widely used by the population” – MFI in Kenya

Many institutions tell us that they will be more structured and more efficient in the aftermath of this crisis. These experiences, sometimes vital to continuing their activities, seem very useful to them for considering operational performance gains in the future.

“Our team has adapted our mobile application to add a feature allowing remote loan restructuring requests. […] We have introduced a new criterion in our monitoring tool – “emergency (coronavirus)”, which means that loan officers will have to monitor their clients remotely, obtain information and enter monitoring data into the software” – MFI in Kazakhstan

“Our new strategy focuses on transforming [our] current way of operating to adopt more digital solutions, reduce the need for physical interactions between employees and clients, and replace cash transactions with mobile payment capabilities” – MFI in Georgia

These positive effects of digitalization, achieved through the rapid changes made by microfinance institutions, are also reflected in the social enterprises in our portfolio of investments. The digitalization of operational processes is a very effective way to combat the constraints of lockdown for companies that deal directly with the public or with raw material suppliers. This is the case, for example, of a Senegalese company that, thanks to digital payments, has seen its milk collection and dairy product sales activities continue and generate growth that exceeds forecasts.

For another social enterprise, specializing in drinking water treatment, the health crisis has also led to the development of home water delivery following an online order.

Our partners are aware that the use of digital solutions is not a comprehensive solution to address all the issues raised by this systemic crisis. They expect their clients and operations to encounter economic recovery challenges, to which digital technology can only provide limited assistance. Despite the increasingly intensive use of digital channels, the commercial activity of microfinance institutions is slowing. They are all focusing on supporting their clients, taking care to address the increasing number of requests for payment deferrals while maintaining risk control and good operational quality.

In some areas, the supervisory authorities have issued directives or strong recommendations for MFIs to grant moratoriums to their clients that can last several months, which imposes a very significant activity on the institutions.

However, in the majority of the testimonies we have collected, the health crisis is perceived as a sequence that requires the various management committees of our partners to deeply reflect on their operational performance under constraints. The experiences lived and the solutions found to deal with the health crisis will be very useful for "the day after," our partners are convinced.

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Microfinance institutions anticipate the first effects of a recession

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By Grameen Credit Agricole Foundation

The crisis is beginning to produce its economic effects

A few days after our last publication, the impact of the coronavirus continues to spread and intensify. The milestone of one million infections worldwide has been surpassed, and new outbreaks of the epidemic are being confirmed.

The Grameen Crédit Agricole Foundation, in constant contact with its network of nearly 80 partner microfinance institutions (MFIs) in 40 countries, continues its work of collecting information, analyzing, and sharing its observations. Over the past few days, we have focused our monitoring on the consequences of the crisis and the work of MFIs to address it. This information is very important. It allows us, at our level, to make the most relevant decisions for the management of the Foundation, for the support of our partners, and for the effectiveness of our action as closely as possible to their difficulties and anticipations. It also contributes to the sharing of information among the actors in this sector who are organizing collectively in these times of crisis.

The results we obtained confirm the trends anticipated in the information reported during the first weeks: the crisis is very severe, undoubtedly beyond our initial forecasts from early March, but resistance is being organized. The effect of the health crisis is systemic. No stress model had anticipated it. The response must therefore also be systemic if we are to avoid a major failure of this industry.

Small local businesses are entering a recession

78% of our partners are seeing the first effects of the economic recession on their areas of activity.

In the initial feedback we received, rural areas seemed to be escaping the initial effects of the crisis, especially in food-producing areas. Now, regardless of the size of the institutions (the smallest have a financing portfolio of less than $10 million, and more than $100 million for the largest) and their geographical location, they are all, more or less, facing similar problems: the impossibility of travel (74%), the decline in disbursements to borrowers (77%), the ban on group meetings (63%) are the reasons most cited by our partners regarding the causes of the slowdown in their activity.

“As indicated in the first analysis, the expected direct impact (up to 6 months) is the possible deterioration of the quality of the portfolio in the tourism, transport and hospitality sectors, as well as that of loans financed by remittances from abroad. A medium-term impact is also expected due to the general slowdown in the economy and the reduction in the solvent clientele.” – Partner in Georgia

More than a third of our partners are experiencing near-total lockdowns (36%) and the others are adapting to restrictive pre-lockdown measures.

“[Our] business has been significantly impacted so far, with clients’ businesses primarily affected by general public fears and more directly by the strict guidelines put in place by the government to try to control the spread of the virus. It is also anticipated that there will be an increase in the cost of living […]. Imports are decreasing, production costs are increasing. It is likely that Kenya’s GDP will fall and inflation will increase, which will affect the country’s economy.” – Partner in Kenya

“We are seeing increasing government action to restrict travel and business activities. For example, one regional government has specified that all microfinance activities in the region must be suspended during the month of April. We are receiving similar requests from village authorities in other regions.” – Partner in Myanmar

Effects that now impact the institutions' accounts

These difficulties are beginning to be reflected in MFI figures. For example, 74% of the institutions report an increase in their portfolio at risk (PAR 1) compared to the end of 2019. This increase is currently contained to less than 10% in absolute value for 8 out of 10 institutions.

Institutions are clearly accelerating and intensifying their use of digital technology to compensate for the inability of sales teams to travel and arrange in-person disbursements. For example, 681,300 respondents reported increasing use of digital services to carry out their activities remotely.

Loan restructuring operations have already begun for nearly one in two MFIs (43%). The announced intervention of regulators and legislators in the financial sector is confirmed: nearly half of the respondents (44%) are encouraged to proactively propose moratoria and restructurings for the benefit of their borrowers (the countries that have imposed these measures include Kazakhstan, Kyrgyzstan, Sri Lanka, Cambodia, India, Uganda, Burkina Faso, Rwanda, Senegal, the DRC, Egypt, Morocco, and many Eastern European countries). New initiatives are also beginning to be considered, such as the implementation of emergency products (such as minimum subsistence allowances) in the coming months.

Institutions are putting in place crisis plans

This systemic crisis has prompted an in-depth review of MFIs' business plans and financing needs. Upon examination, the increase in loan deferrals granted to borrowers has not yet significantly translated into additional financial resource needs for the MFIs surveyed. Thus, at the time of the survey, 48% of them did not yet perceive any changes in their liquidity needs compared to the projections made for the year, and a third even envisaged a decrease in their needs due to a significant decline in their activity.

At this stage, only one in five MFIs (19%) anticipates an increase in its financial needs, linked to the increase in the price of inputs (seeds, fertilizers, raw materials, etc.), which will trigger an increase in borrowers' financial needs, mainly in the rural areas of our intervention territories. The major international microfinance networks are behind this prospective analysis.

“In addition to the Covid-19 crisis, Kazakhstan has been hit by the sharp drop in oil prices, which weakened the national currency from 380 tenge to 445 per dollar” – Partner in Kazakhstan

Our partners' responses now reveal other factors of concern, particularly in their ability to finance their activities: a quarter of them anticipate a loss in the value of their local currency against the dollar (26%) and a significant increase in currency hedging in their future financing (23%). One in five MFIs is already experiencing financing difficulties with their usual donors.

To be able to more closely manage the rise in risks and financing changes, more than half of MFIs (55%) report having finalized, or are in the process of doing so, a Business Continuity Plan including precise liquidity monitoring. This responsiveness is remarkable, and such plans are an essential element in helping MFIs cope with and manage the consequences of the crisis.

Our analysis leads us to observe an apparent correlation in the quality of Business Continuity Plans following the Coronavirus crisis and the past experience of a major crisis that has already affected the MFI. The lessons learned from past crises thus seem to play a very important role in the resilience of institutions in the face of a crisis, whether financial, political, health-related, etc. However, many institutions with less experience in this area also demonstrate a remarkable willingness to innovate and an ability to anticipate.

Donors also reacted very quickly. Also informed by lessons learned from past crises, they have demonstrated, in recent weeks, a remarkable capacity for intervention and anticipation in a sector that is, despite everything, still young. Thus, in all regions of the world, international lenders, foundations, investment funds, and local banks are working on joint action plans. Multiple meetings are being organized around the world to anticipate the crisis and ensure that its effects, which would be devastating without this awareness and rapid and determined commitment, are absorbed; all agree on the need for effective information sharing and coordination between the various stakeholders. Donors are organizing their actions around responses tailored to the financing needs of MFIs impacted by the crisis, but also by offering monitoring tools, technical assistance plans, and training to strengthen the capacities of MFI teams in the face of this sudden and exceptional situation.

All these elements underscore the extent to which this crisis is a matter for all microfinance stakeholders. The involvement and rigor of local institutions, the coordination of international networks, the support of public and private donors, and the confidence of investors will be the key values of our collective ability to overcome the challenge of this health tsunami.

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Discover other articles on: Covid 19 Observatory.

ADA publishes a guide to ensure the continuity of MFIs during the crisis

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© Didier Gentilhomme

The health and economic crisis caused by Covid-19 is severely impacting microfinance institutions and their clients. To support the microfinance sector in this unique context, the NGO ADA is continuing its mission of promoting inclusion for all by leveraging its knowledge and expertise in risk management with a guide to best practices for the continuity of microfinance institutions.

Available in French, English and Spanish, this guide offers recommendations to microfinance institutions for organizing crisis management and ensuring business continuity.

The document can be downloaded from the ADA website, on a page exclusively dedicated to managing the Covid-19 crisis, a space that offers articles from partners, guidelines, testimonials and videos in order to provide a place for exchanges and sharing of experiences between professionals in the sector.

This guide describes some points of attention for analysis and measures to be taken to organize appropriate crisis management and ensure business continuity in the face of the COVID-19 pandemic.

To access it, click here.

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[INTERVIEW] “Life must go on, we must not lose hope”

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Interview with Dara Huot, Director, Phare Performing Social Enterprise

©Philippe Lissac

CambodiaMag interviewed Dara Huot, Director of Phare "Performing Social Enterprise," a partner of the Grameen Crédit Agricole Foundation. He shared his concerns and hopes for the Phare circus' social enterprise.

Since March 17, performances at the Phare Circus, one of the main attractions in Siem Reap and Battambang, have been suspended...

Yes, we were implementing a government decision against performance venues. Before that, we had implemented all the necessary measures to disinfect the premises between each performance and respect social distancing between spectators. The temperature was checked for each person entering the big top, and hand sanitizer dispensers were placed throughout. But in any case, the number of spectators was gradually dwindling. The government decree only hastened a closure that would have been inevitable.

How did the staff react to this closure?

Phare is a very large social enterprise, split between Siem Reap and Battambang. Here, we have 40 artists and 70 employees. The Battambang school, which offers training in circus, but also in graphic animation, dance, painting, and theater, has 110 teachers for 1,200 students. When the closure was decided, we took the opportunity to resume our "to-do" list—you know, all those little things that accumulate over time and that we generally reserve for the off-season.

We cleaned everything, repainted, and did all the maintenance work... And then, when we finished all that, everyone went home. The vast majority of the staff comes from Battambang, so many have joined their families there. All the artists continue to train hard, for the resumption of shows, but also for the upcoming tours. Some have been canceled, but we hope to be able to do the one planned in France for this winter.

Are salaries still being paid?

All salaries were paid throughout the month of March. Starting in April, they were reduced by 50 %, and this will continue for the following months. It is unthinkable to leave our employees without any income, and we do not hesitate to dip into our cash flow to do so. But how long can we continue like this? After 3 or 4 months, the coffers will be empty... Especially since we still have to pay all our rent.

Do your employees receive support from institutions?

No, it's not like in France, where compensation is granted to people who find themselves unemployed. Nothing is planned for them here, and the situation is all the more difficult because many employees have contracted debts with banks and microfinance organizations. The interest they have to repay each month is very high, and I don't see how they'll be able to get out of it. The only hope would be for these organizations to relax the repayment terms. Perhaps by reducing interest rates, spacing out repayments, or even suspending them until things return to normal. A moratorium on rent could also help many Cambodians see out the crisis. As things stand, repaying a loan, paying rent, and supporting one's family when one has a reduced salary or, worse, when one finds oneself unemployed will pose major problems for a large part of the population.

How will this crisis change Siem Reap?

Since the city opened to mass tourism, that is, some twenty years ago, the number of visitors has only grown exponentially. Infrastructure, however, has not necessarily kept pace. The environment has suffered greatly from the increase in visitors, waste is not always well managed, and access to water and its quality are still problematic in certain neighborhoods. Electricity needs have increased, but outages remain numerous. Why not take advantage of this involuntary "pause" to renew ourselves, question ourselves, and thus beautify the city? We must remain positive, try to see what we can learn from this ordeal. Life must go on, we must not lose hope, and continue to be positive despite the circumstances. We must, more than ever, take care of ourselves and our loved ones, and stay strong. This is important for ourselves, but also for those around us. Everyone hopes that this pandemic will last as short a time as possible. 2019 was a difficult year, and 2020 will be even worse. But we will get through it, and I hope we will come back tougher from this ordeal. Even if it will, of course, be very difficult to get back on our feet.

The microfinance sector is organizing itself to face the effects of the health crisis

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By Grameen Crédit Agricole Foundation

The COVID-19 virus continues to spread across the world, with more than 450,000 confirmed cases as of March 26, 2020. Governments, even those that deny it, are implementing increasingly stringent containment measures. As the situation evolves more rapidly every day, microfinance stakeholders are preparing to face this crisis by taking initial, beneficial steps.

Following its survey launched two weeks ago, the Grameen Crédit Agricole Foundation has created an observatory to continuously update the information collected through daily exchanges with its partner microfinance institutions (MFIs). The goal is to better understand how to support them and also to share its analyses with other financial stakeholders in the inclusive finance and development aid sectors.

Adapting to slow the spread of the virus

MFIs quickly recognized the health implications of the crisis. They immediately sought to adjust their operating procedures to address the risk of contamination by adopting recommended barrier measures and launching awareness campaigns among clients and employees.

“Handwashing is mandatory in all branches, with buckets and soap provided for everyone entering the offices. Hand sanitizers are provided on the counter for all customers who transact with tellers. […] The process of acquiring protective masks for tellers is underway. All staff members experiencing symptoms are strongly advised to stay home during monitoring. We have strongly advised all staff to avoid visiting branches given the evolving situation unless absolutely necessary.” – Partner in Sierra Leone

MFIs have also had to adapt to decisions taken by local authorities to slow the spread of the virus. Organizations in the highest-risk areas have been forced to partially or completely cease operations and close some of their local branches.

“All operations will be closed from 12:00 on 26 March 2020, in accordance with the President’s announcement on Monday 23 March, to allow staff to return home for the lockdown period. […] Disbursements to clients have been deferred until the end of the lockdown period.” – Partner in South Africa

Teleworking or staff rotation systems were quickly implemented at the vast majority of our partners. Faced with numerous bans on gatherings, institutions now work with a representative of the credit solidarity groups and stay in touch with their clients through instant messaging services.

Digital solutions are particularly suited to this context. They allow microcredit disbursements and remote debt collection to continue. At a dairy in Senegal, for example, payment to farmers for milk collection has not been disrupted because it has been made via a mobile payment system for several weeks.

“We encourage our customers to use mobile payment platforms for refunds via SMS, as it is the safest method available today.” – Partner in Uganda

While MFIs have been able to quickly adapt their operating procedures, the time has also come to prepare for the looming economic slowdown. Crisis meetings are multiplying at headquarters, or via video conferences from managers' homes, in order to put continuity plans in place.

New regulations

A growing number of countries are introducing new credit regulations to cushion the economic shock and the likely risk of insolvency among vulnerable customers. Regulators are encouraging financial institutions to grant payment deferrals to their clients affected by the crisis and to restructure loans. Such measures are already beginning to be put into practice.

“The government is also implementing measures to help local businesses, such as reducing interest rates. For example, the borrowing rate for secured loans has been lowered from 1%” – Partner in Myanmar

“The Central Bank of Kyrgyzstan has taken the following support measures: 1) cancel the accumulation of penalties for all borrowers; 2) review loan repayment terms and provide for a payment delay of at least 3 months when borrowers request it; 3) when restructuring loans related to changes in borrowers' cash flows due to the coronavirus, institutions should not consider them bad loans if the cause is the health crisis” – Partner in Kyrgyzstan

“The Central Bank has announced that financial institutions must accept all requests for repayment deferrals until April 30.” – Partner in Kosovo

The microfinance sector is demonstrating a high degree of responsibility and maturity in addressing this global crisis. The Grameen Crédit Agricole Foundation's partner institutions are producing regular financial statements and forecast analyses of their financing needs for the coming months. Although we have not yet observed any significant increase, changes in portfolio at risk (PAR) levels are systematically monitored with a very high degree of vigilance. Numerous exchanges between lenders, specialized nongovernmental organizations, and microfinance institutions are now taking place daily.

The Grameen Crédit Agricole Foundation maintains regular contact with its partners and colleagues in a reciprocal effort to pool ideas and resources. We share our analyses and best practices implemented by microfinance institutions with our partners, responsible investment stakeholders, and our peers.

Pooling available information, analyses, and anticipations, followed by the concerted implementation of shared decisions, are vital principles for our sector today. Through this transparency, this consultation, and a necessary adaptation of our intervention principles, we should be able to overcome the effects of this exceptional health crisis, which risks taking with it many microfinance institutions, leaving vulnerable populations in desperate situations. Because we know that the crisis will hit the most deprived populations first and foremost. Hard. Let us rise together to this humanitarian challenge.

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Discover other articles on: Covid 19 Observatory.

How Coronavirus Affects the Microfinance Sector

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By Grameen Crédit Agricole Foundation

Created in 2008, at the joint initiative of Crédit Agricole SA and Professor Yunus, founder of the Grameen Bank and 2006 Nobel Peace Prize winner, the Grameen Crédit Agricole Foundation is an operator committed to promoting a more shared economy.

An investor, funder, technical assistance provider, and fund advisor, the Foundation has more than 80 partners (microfinance and social business institutions) and operates in some 40 countries with nearly €100 million in outstanding financing. The Foundation focuses on microfinance institutions serving women and rural populations. These institutions support approximately 4 million clients.

The microfinance sector is exposed and worried

On March 19, according to figures from Public Health France, the coronavirus had infected 213,000 people worldwide. 8,800 deaths have been reported. After announcing the closure of many institutions and businesses, containment measures continue to be implemented worldwide. Africa and South America were not officially affected by the virus for a long time, but they are now facing this pandemic with hundreds of cases already identified.

The global health crisis is gradually becoming an economic crisis. Economic activity has slowed in all countries, and stock markets have lost nearly a third of their value in less than a month. The microfinance sector will undoubtedly be severely affected by the effects of this global crisis.

The Grameen Crédit Agricole Foundation team quickly launched a survey of its partners on March 11th to gather their initial impressions and analyses, the impact on their financing activities, their clients' activity, and their anticipation of future needs and challenges. All the information contained in this article comes from this survey. Fifty-six microfinance institutions (MFIs) responded, out of 75 partners surveyed (participation rate of 75%). The final responses were received on March 19th.

All our partners have expressed real concern in their responses about the expected effects of this global health crisis.

Local government decisions are already impacting small income-generating activities

48% of the MFIs surveyed estimated that their clients were already affected by the effects of the coronavirus outbreak at the time of the survey, and 68% of them believe they will be in the near future. In many countries of operation, governments have decided to close schools and non-essential activities, restrict travel, or ban gatherings. This is already the case in Sri Lanka, Cambodia, Romania, Myanmar, Sierra Leone, Jordan, Mali, and other operating countries. These changes are taking place everywhere today, and new countries are added to this list every day.

Such decisions are already having a direct impact on our partners' clients. Many microfinance borrowers rely on imports for their business. Border closures and travel bans have a direct impact on their operations. The travel ban in China affects not only Asian countries but also African countries.

“Since the border with China has been closed, some agricultural product prices are decreasing, so our farmer clients are not getting good prices for their crops.” – Myanmar Microfinance Institution

“We have customers who travel to shop (China, Ivory Coast, Togo, Benin, etc.). Informal traders are afraid, and this could affect their business.” – Microfinance institution in Burkina Faso

The inability to gather impacts all operations taking place in markets and fairs. Traders are prohibited from operating and have no alternative income. The travel ban is severely impacting global tourism and, consequently, all small, local businesses dependent on tourism (hotels, drivers, guides, restaurants, souvenir sellers, etc.). Remittances are declining, which also affects families back home who rely heavily on these transfers.

“If the travel ban continues in the Gulf region and Europe, Jordan’s economy is likely to suffer as it also depends on tourism revenues and remittances from the Gulf” – Jordan Microfinance Institution

With the exception of one case, we have not received any information on the implementation of any economic mitigation plans that local authorities may have put in place, which likely reflects a difficulty in adjusting or intervening in this context, and likely also a lack of accurate data or available budgetary means. The only specific example provided to us is that of Palestine. Through eight guidelines, the Palestinian Monetary Authority intervened by urging financial companies to continue providing lending services to individuals to ensure the continuation of the commercial and economic cycle and to consider deferring the periodic monthly payments of all borrowers for the next four months (six months for the tourism and hospitality sectors). The measures also stipulate that no additional fees, commissions, or interest on deferred payments may be charged during this period.

Financial institutions' activity could contract

Although concerned about the evolution of the crisis and its first signs, 59% (33) of the MFIs surveyed indicated that their activity was not yet affected by the epidemic at the date of the study (between March 11 and 19). 23 MFIs (37%) felt concerned at the time of this survey, giving several explanations such as the risk to field staff, restricted travel, and working from home.

One of the main concerns is the ban on meetings, which will affect all institutions whose microfinance methodology is based on a "solidarity guarantee group" approach. Some partners are already adapting by appointing group representatives to limit meetings or by relying on "group representatives" from among their clients.

In some countries where no clear decision has yet been made, MFIs are considering postponing disbursements if their loan officers are unable to travel or need to temporarily adapt their collections process.

“During the emergency period until May 29, 2020, customer center meetings will not be held as usual. Instead, the “Pay and Go” method has been implemented as follows: only “group leader” clients, two to four people per center of generally 15 to 20 clients, are invited to attend the regular center meeting. Group leaders will collect the deposit from their members.” – Indonesian Microfinance Institution

“We have implemented a special procedure to meet individually with members of the joint and several guarantee groups. We provide advice to clients on how best to deal with the situation.” – Senegalese Microfinance Institution

Our partners must also adapt to the situation faced by their employees by ensuring their health above all else. The risk of virus transmission is an important factor to consider for the work of loan officers. The responses to the questionnaire show that the lockdown rules are directly and immediately preventing the smooth running of business for all departments within the institutions. Some staff members are already working from home in some institutions.

“Almaty, where the head office is located, will be quarantined from March 19, employees will work remotely” – Kazakhstani microfinance institution

“Field staff are at significant risk of contracting the virus, so employees are reluctant to work with clients. The quarantine will hit the entire MFI market.” – Microfinance Institution in Uganda

The risk portfolio and liquidity needs are under surveillance

Many institutions express concern about rising risks. But according to our survey, at the time of their responses, only 11 MFIs (20%) noted an increase in their portfolio at risk. Our African partners seemed more concerned than their peers on other continents. However, a large number of them across all our areas of operation (40 countries across 3 continents, Africa, Asia, and Europe) are worried about the future: 36 MFIs (64%) anticipate an increase in their portfolio at risk.

“We are likely to experience a potential increase in the delinquency portfolio and a reduction in credit demand. This increase in delinquency is expected to be around 2%, but our portfolio growth will undoubtedly slow down.” – Cambodian Microfinance Institution

Surprisingly, a few partners believe they are no more at risk than usual. These reactions come from institutions that are mostly located in rural areas.

“Overall, since our clients are mainly rural (70%), we expect that they will not experience a significant deterioration in their business or income due to the increase in the prices of their agricultural products. We will have a clearer picture in the second half of April.” – Kyrgyzstan Microfinance Institution

“As of March 16, 2020, our business is continuing as usual. We have not yet seen any impact on loan repayments in Cambodia, particularly in Siem Reap and Phnom Penh. However, we expect some increase in Siem Reap starting later this month. In this part of the country, however, our clients live primarily in rural areas. Our exposure to tourism, hospitality, and the service industry is minimal.” – Cambodian Microfinance Institution

This health crisis will have an impact on the liquidity needs of institutions. According to our survey, 29 MFIs (52%) anticipate changes in their financing needs. Most small MFIs (portfolios less than $10 million) do not anticipate changes over time. Their size seems to be a factor in agility, but we are attentive to this point, which does not seem particularly obvious to us. The majority of medium-sized institutions (portfolio size between $10 and $100 million) anticipate changes in their financing needs from donors (including the Grameen Crédit Agricole Foundation). Many institutions expect problems refinancing their activities. An increase in the cost of currency hedging mechanisms is expected, and discussions with the various lenders are or will be initiated shortly.

“Indirectly, the exchange rate is becoming very volatile due to the epidemic. We are seeing an increase in demand for microloans in US dollars and a decrease in demand in local currency, which is affecting the volume of loans we can disburse.” – Myanmar Microfinance Institution

Liquidity problems are anticipated. Indeed, non-repayment by microcredit beneficiaries could hinder the ability to disburse new loans. Rising provisions for risks and potential losses are seen as an obstacle to securing new financing from traditional lenders.

“If the situation continues until mid-year, we will need liquidity as most of the liquid assets will have been wiped out by high provisioning for impaired assets (expected losses) due to rising non-repayment” – Microfinance Institution in Uganda

“Loan default leads to decreased liquidity. Yes, we have taken steps to mitigate this potential situation.” – Malian Microfinance Institution

Microfinance sector calls for appropriate measures

Some MFIs have already asked the Foundation if it would be possible to help their institutions get through the period when the effects of the pandemic will be the harshest.

“We would like advice on how to avoid the disease and on available and effective treatments for treatment in case of infection” – Microfinance Institution of Benin

“We would like the Grameen Crédit Agricole Foundation to compile information on the measures to be put in place to avoid the coronavirus, and also, for institutions around the world, on how to meet the challenges that lie ahead.” – Microfinance institution in Uganda

One partner recalled that during past natural disasters, particularly tailored measures had been put in place. Some, which may seem counterintuitive, had resulted in increased funding to enable clients to recover from the shocks and overcome this difficult period. Drying up funding would only intensify the difficulties and impacts of the crisis.

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Discover other articles on: Covid 19 Observatory.

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