South American countries were better prepared for crisis: Rita de Boer, Triodos microfinance funds

By Matthew Fuchs

Jan. 14, 2010: With its mature and dynamic microfinance sector, Latin America is one of the world’s largest microfinance investment markets. As a result, the region’s response to the financial crisis has profound implications for microfinance investment globally. To gauge the current state of the investment climate in Latin America, Microfinance Focus has conducted a survey of fund managers. This is the third in our series of survey findings.

Rita de Boer, Fund Manager at Triodos Investment Management, shares some insights into how the region has responded to the financial crisis.

Triodos Investment Management is a fully-owned subsidiary of Triodos Bank. Based in the The Netherlands, Triodos Bank specialises in sustainable and socially-responsible investments and has invested in microfinance since 1994. Triodos Investment Management oversees four microfinance funds – Triodos Microfinance Fund, Hivos-Triodos Fund, Triodos-Doen Fund and the Triodos Fair Share Fund.

Microfinance Focus: Has funder appetite for the region been affected by the downturn?

Rita de Boer

Rita de Boer: With different levels of portfolio quality deterioration in the region in the last 12 months, we have seen that a number of funders have become somewhat more reserved in their funding appetite. The situation differs, however, from country to country and MFI to MFI. The Triodos microfinance funds have kept close contact with all their partners to monitor and support MFIs to take appropriate action to cope with the distressed situation. For MFIs that respond sensibly to the crisis and demonstrate resilience, the Triodos microfinance funds remain available.

Microfinance Focus: How has the downturn affected MFI demand for funds? Is there a funding shortage or is excessive liquidity an issue?

Rita de Boer: The economic downturn has, in general, resulted in lower demand for external debt from MFIs. First of all, as a form of prudence, many MFIs had set lower growth targets for 2009, anticipating the effects of the downturn on their clients. Others simply have not been able to grow given lower demand of their clients. Hence, this has led to lower demand for funds by many MFIs; in some cases this has even resulted in pre-payment of existing loans. The Triodos microfinance funds have also had various loan applications withdrawn by MFIs. However, there continues to be several well-performing MFIs with additional funding needs and based on our selection procedures, the Triodos microfinance funds have been able to disburse new loans.

Microfinance Focus: A recent Fitch report argues that the impact of the downturn cannot be generalised across regions but varies from country-to-country. Which countries have fared better or worse than others?

Rita de Boer: As mentioned before, the situation does indeed differ from country to country. South American countries have generally fared better than Central American countries. Central American countries and Mexico appear to have been hit worse by the economic downturn in part due to their closer economic ties with the United States. Also certain South American countries were better prepared, i.e. had built up more reserves, and have hence been able to stimulate the local economies more, which in turn, has helped MFIs and their clients indirectly. In one particular country, Nicaragua, the economic downturn resulted in increased social unrest, which triggered a political movement for non-payment of loans which has directly impacted the performance of MFIs.

Microfinance Focus: Multilateral agencies and DFIs have stepped-up their investment activity over the last year, for example the IFC’s Microfinance Enhancement Facility, OPIC’s new fund for Latin America. Do investors face increased “competition” from multilateral agencies?

Rita de Boer: These new initiatives of Multilateral agencies and DFIs appear to be targeting the more developed and well performing MFIs in the region, most of which have only experienced some liquidity problems during the last 12 months, as external debt and savings continued to be provided. Increased ‘competition’ of these new funds is, therefore, apparent. This is even more intensified given lower demand for funds by many MFIs.

Microfinance Focus: The agitation for regulatory change in Nicaragua has been well-publicized. Are there any other moves toward regulatory change in the region? If so, what effect could this have on investment in the region?

Rita de Boer: We are not aware of any recently proposed regulatory changes, such as new interest caps or compulsory extension of tenors, in the region. However, for certain countries the political environment may result in a movement for regulatory change, albeit, that is likely to be in another form than in Nicaragua. Should this happen, it would surely impact overall investment in the region, as it will show that Nicaragua is not an isolated event. The microfinance sector and the Triodos microfinance funds are actively engaged to integrate best practices and client protection principles into the microfinance sector, to strengthen the sector itself and make it less prone to political agitation.

Related Posts:

• Downturn has not reduced investor interest in Latin America: Beth Castleberry, Global Partnerships
• There is still a funding shortage for smaller MFIs in Latin America: CEO, Envest
• Excess liquidity an issue in Latin America: Eelco Mol of Triple Jump
• Impact of crisis on Latin America not easy to generalize: Ayesha Wagle, MicroCredit Enterprises
• ANALYSIS: Is microfinance investment on decline in Latin America?
• Nicaraguan crisis continues to impact Dexia Microfinance Fund: BlueOrchard
• OPIC Board Approves $125 MN Microfinance Fund for Latin America
• E. European and Latin American microfinance could be hit by slowdown: Fitch

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