Banyan Global operates seamlessly within four practice areas:
The impact of the current global economic crisis on the world’s large commercial financial institutions–and on their clients–has been the topic of daily front-page news stories worldwide for the past 18 months. The failures of large domestic and multinational financial institutions point to the need for stringent risk management practices among microfinance institutions (MFIs), while presenting MFIs with new financial and credit risk challenges. Banyan Global is helping MFIs to navigate the global financial crisis through training and technical assistance.
In previous regional and international financial crises, microfinance services and institutions proved fairly resilient due to their limited financing and lending mechanisms. As MFIs have become more commercially oriented and, therefore, more integrated into the global financial industry, this situation has changed. The widespread credit crunch, inflation, currency dislocation, and the global recession are affecting MFIs in a number of ways, depending on the strength of local and national financial and regulatory institutions, internal funding structures, and the economic status or vulnerability of clients. While deposit-taking MFIs have remained insulated, non-deposit taking ones reliant on commercial sources of credit have been hit with escalating interest rates or withdrawal of credit lines, in addition to foreign currency exposure in some cases.
As MFIs have become more market-oriented in their lending practices, in many cases the industries and sectors they support have become more integrated into the global economy. This trend has made microfinance clients more prone to the effects of the global downturn, in turn affecting repayment rates. For example, rural MFIs catering to agricultural clients have been affected by the global food crisis, while MFIs serving producers of manufacturing inputs have been impacted by decreased demand. Microfinance clients in different corners of the world have been affected by skyrocketing inflation and the drying up of remittances from abroad, in addition to increased costs of food and gas, trends that predate the crisis.
Despite the importance of risk management, only a handful of MFIs have invested time and resources on this issue. In the current volatile economic climate, the core principles of risk management are needed more than ever, despite the limited discretionary funding available to MFIs today. This area is a critical one in which donors can help.
Banyan Global has focused on financial and credit risk management over the past several years, concentrating on MFIs undertaking transformations into regulated financial institutions. For example, we provide technical support focusing on financial risk management to Mi-Bospo, an MFI based in Tusla, Bosnia and Herzegovina. Banyan Global is providing ongoing technical support over a year, helping Mi-Bospo to review and improve its risk management policies, functions, and structures. In addition to restructuring Mi-Bospo’s asset liability management structure and operations, Banyan Global is providing guidance in strengthening the MFI’s internal management and human-resources structure to institutionalize best-practice risk management approaches.
In addition to broad technical assistance to MFIs on operational and risk management issues, Banyan Global offers its signature course Tools and Techniques for Effective Financial Risk Management to MFIs. For more information on the course, click here.