Just thought I would throw in a few observations that I have made from MF on the ground level.

BEFORE we hit the current financial crisis as a country, the same which has now translated into a global crisis, the US economy was still not in great shape. It was at that point several months ago now that (at least here in the DR/Haiti) our associates begin to feel the pressure

The economy of nearly every Caribbean county is very closely tied to that of the US. As gas prices spiked earlier this year, so too did they in the Caribbean. In the DR alone, gas can cost upwards of $6 USD/gallon, and this is in a country where the minimum wage is roughly a $300 USD allowance per month. Increased gasoline and diesel costs led to increased cost of transportation for meats, fruits, vegetables, transportation, construction materials, etc.

So how does this affect the associates on the ground level? Micro entrepreneurs participate in micro economies, which are in part fueled by micro loans. IHere is one example: in the DR, costs for cement doubled, costs for iron increased significantly, costs for sand increased— the result was an indefinite hold put on innumerable construction projects. For a country where tourism brings in more money than any other industy, and where growth of facilities to support tourism is necessary, halts on construction projects is bad news for all. This one part of the economy resulted in losses for many of our associates– where there is construction, there are construction workers who need to eat and drink, and whom are being paid something with which to buy food and drink. When the construction stopped, the workers were fired, and every associate who used the construction sites of new home developments, new resorts along beachfront property, etc. lost the opportunity to sell their goods to a buying customer. These sites were good fuel for used/new clothing sales, small food stands, fruit stands, and beverage carts—all very successful micro-businesses here in the DR/Haiti.

Furthermore all microentreprenures who sell goods, as opposed to home-grown agriculture, have faced enormous increases in transportation and selling-costs. Busfare to market or port locations where clothes/shoes/products are bought at discount increases, the cost to transport good back to their home location increase, and consequently the profit margin of each micro entrepreneur decreases.

These are all things that happen on a large scale and with wider scope of course, but they illustrate how the downfal of the US economy began to affect microfinancing on the ground level some time ago.

To date I have not observed any significant operational changes due to the recent crisis, however I will stay tuned and will be happy to share any developments on this blog.

To both Jerry and Ryan, thanks for bringing up an interesting and pertinent topic!

1) I think that MFI’s will find it increasingly difficult to generate donations and other charitable capital, if the economy continues to worsen — I don’t think that can be doubted. I don’t have access to research on past recessions, but I’m positive that all charities will suffer.

2) That said, I think that MFI’s that have built their organizations to be sustainable (i.e. grown large enough to generate positive financial returns, charged enough to cover their costs, and are located in areas with sufficient growth opportunities) will be much less affected by the economic situations. Because, their clients will largely be unaffected by the broader market issues; so, if they have the capital already (i.e. aren’t largely dependent on donations), I’d think that they’d be much more likely to not only survive, but possibly prosper during these times… as they have been to date (i.e. MFIs like SKS, Bandhan, and others)

i am a ‘masters in social work ‘ student. previously i was planning to join a microfinancing institution. given the econommic meltdown , should i still go for it or i should head for any government funded institution?

MFIs are have been affected by the crisis… the article below outlines some strategies to mitigate vulnerability in future.

http://www.microsave.org/briefing_notes/india-focus-note-23-the-global-financial-crisis-and-indian-microfinance