‘Continuous learning culture should be inculcated’:

Financial crisis may hit microfinance industry

Ramani Kangaraarachchi

Although the micro- finance industry has shown impressive growth and a degree of resilience in the recent past, the pause in global growth momentum under the current financial crisis might have a negative impact in the near future, said Director, Centre for Banking Studies, Udeni Alawattage.

He was speaking at the inauguration of the four-day International Seminar on “Microfinance for inclusive Development and Sustainable Growth” at the Centre for Banking Studies Rajagiriya yesterday.

Under the current global financial turmoil, market signals on funding for microfinance are clearly indicating a tightening as money will become more scarce, more conservative and more costly and based on the recent experiences some clients may understandably worry about the safety of their life savings and decide that the mattress is safer, he said.

However, this phenomenon, both positive and negative, provides an opportunity for micro finance professionals, practitioners and regulators to catch a breath, re-evaluate and challenge their current status-quo and assumptions to chart a new path forward, he said.

Alawattage said that financial services for the poor have shown remarkable resilience throughout the recent financial crises specially during the Mexican, Asian and Russian financial turmoil in the 1990s. Loan portfolios of microfinance institutions during such crises barely blinked while corporate portfolios collapsed. This is even true in terms of the current global financial crisis.

A recent CGAP and JP Morgan report highlighted that public listed micro- finance companies have outperformed traditional banks by 250 percent since 2003. This might be due to the reasons that the micro- finance industry possesses solid fundamentals, credit worthiness of its clients and they have double-bottom line objectives aiming at a mix of social and financial returns, greater outreach and sustainability, he said.

Knowledge has become a vital element for organizational renewal to be ahead or at least on par with the external market dynamics and accordingly, regulatory and supervisory authorities and other financial institutions in each country need to be adapted to knowledge dynamics and a continuous learning culture should be inculcated to meet new challenges.

Alawattage hoped that the seminar would be an appropriate and timely exercise at the time when greater pressure and challenge were posed for regulators and professionals in the financial services industry.