From Boom to Bust: How Different Has Microfinance Been from Traditional Banking?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper presents an in-depth analysis of developments in the microfinance sector before and after the Lehman Brothers collapse in 2008 by comparing them with developments in traditional banking sectors of emerging market economies and developing countries. The findings indicate that microfinance has been part of the same credit boom observed in the traditional banking sector. Moreover, as in the traditional banking sector, the boom was fostered by substantial inflows of foreign capital. This raises the question whether the crisis resilience the microfinance sector has shown in the past remains a characterizing feature of microfinance or whether the same risk factors associated with excessive credit growth lead -as in the traditional banking sector -to greater vulnerability.The findings indicate that microfinance markets with strong capital inflows, high credit growth rates and rapidly increasing competition experienced a substantial decrease in credit growth and deterioration of portfolio quality in the post-Lehman period. This is in line with the evidence found for the traditional banking sector in emerging markets and developing countries. The paper concludes that by becoming part of the global financial system, microfinance has lost one of the characteristics which distinguish it from traditional banking, namely its higher resilience towards crises in domestic and global financial markets.

Microfinance, country governance, and the global financial crisis

“…These findings are in line with Di Bella (2011) andWagner (2012) that show that MFIs have integrated into the global financial system and are exposed to global risk factors. Consistent with Ahlin, Lin, and Maio (2010)'s earlier study of microfinance performance for the 1996 -2007 period, we find that macroeconomic growth has a complementary effect in supporting microfinance.…”

“…GLP growth, which is calculated as the log-difference in year-end real gross portfolio, is the most commonly used indicator of credit growth in the microfinance literature (see e.g., Krauss and Walter 2009;Ahlin, Lin, and Maio 2010;Di Bella 2011;Wagner 2012). Since a MFI can grow its dollar loan portfolio by reaching a larger number of clients and/or by increasing the size of its loans, we follow Ahlin, Lin, and Maio (2010) by including two supplementary growth indicators: growth in the number of active borrowers (NABs growth) and growth in average loan size.…”

Investment in Microfinance Equity: Risk, Return, and Diversification Benefits

“…Figure 4 plots the estimated conditional volatilities of both the GMI and GFI. 2008 crisis, confirming that microfinance is no longer a crisis-resilient sector (Visconti, 2008;Wagner, 2010). …”

Investment in Microfinance Equity: Risk, Return, and Diversification Benefits

“…Figure 4 plots the estimated conditional volatilities of both the GMI and GFI. (Visconti, 2008;Wagner, 2010).…”