All Eyes on Asset Quality: Microfinance Global Valuation Survey 2010

March, 2010     Xavier Reille, Christoph Kneiding, Daniel Rozas, Nick O’Donohoe, and Frederic Rozeira de Mariz

The past year held many challenges for microfinance: not since the Asian crisis of the late 1990s has the sector faced a more difficult economic environment. Yet despite these conditions, most microfinance institutions (MFIs) proved to be up to the challenge.

Beginning in January 2009, MFI portfolio delinquency levels began to deteriorate rapidly, with loans past due over 30 days (portfolio at risk [PAR30]) jumping from a median of 2.2 percent to 4.7 percent during the first five months of 2009, while profitability dropped from a median return on equity (ROE) of nearly 18 percent at year-end 2008 to 6 percent by May 2009. However, since June 2009 delinquency has moderated and profitability levels have come back to stabilize at 4 percent for PAR30 and 10 percent for ROE, respectively. Most MFIs continue to maintain solid reserve and capitalization levels, with equity ratios unchanged from the 18–20 percent range established over the past two years.

The effects of the downturn were also far from uniform. While Central America, Eastern Europe, and Central Asia were particularly hard hit, large areas in South America and South Asia have witnessed little or no impact. At the same time, a few countries (Nicaragua, Bosnia and Herzegovina, and Morocco) have experienced severe delinquency crises but for reasons not directly related to the global downturn.