Shift seen in microfinance risk factors - Survey

The global financial crisis that developed in rich nations is leaving practically no corner of the financial world unscathed, including microfinance, the small-scale financial services offered to the world's poor, a new survey reveals.

The industry gained traction during the global boom of easy credit and low inflation, spurring competition that threatens to take the focus off alleviating poverty and more toward making a profit.

But now with lending conditions tight, costs rising and return on assets dropping, credit risk is the biggest concern among those surveyed versus the quality of microfinance institutional (MFI) management or corporate governance which topped an early 2008 survey.

"Today, all the top findings relate directly to the crisis, to do with the impact of difficult financial markets, of recession, and of global economic turmoil," David Lascelles, one of the survey's lead authors, told reporters.

This marks a first major stress test for microfinance institutions, the survey from the Centre for the Study of Financial Innovation showed.

"Many MF (microfinance) clients live close to the edge and are perilously exposed to worsening economic conditions," the report said.

Credit risk is the No. 1 concern, moving from the No. 10 spot in the prior survey.

Liquidity, which is generally defined as having the cash available to make loans or meet deposit withdrawals was the second highest risk, having come in at the 20th spot last year.

"Respondents see the economic crisis hitting microfinance at a time when credit quality is already deteriorating for reasons linked to the more competitive nature of the industry and a more calculating attitude to debt among borrowers," the report said. NEW YORK, Reuters