How to Escape the Microfinance Lending Squeeze : Evidence from Ethiopia
Across the world, small-scale lenders - including microfinance institutions (MFIs), community-based financial institutions, and other nonbank financial institutions - have grappled with uncertainty through the Coronavirus disease 2019 (COVID-19) pa...
| Main Authors: | , , |
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/267331623215965202/How-to-Escape-the-Microfinance-Lending-Squeeze-Evidence-from-Ethiopia http://hdl.handle.net/10986/35758 |
| Summary: | Across the world, small-scale lenders -
including microfinance institutions (MFIs), community-based
financial institutions, and other nonbank financial
institutions - have grappled with uncertainty through the
Coronavirus disease 2019 (COVID-19) pandemic as portfolio
quality deteriorated and capital buffers were drawn down.
Ethiopia’s microfinance borrowers - particularly micro and
small enterprises (MSEs) are currently facing a financing
squeeze that undermines their resilience during the COVID-19
crisis and threatens to slow their recovery. Although
Ethiopian MFIs entered the crisis in good financial health,
they soon began to face deteriorating portfolios and a
contraction in liquidity. Drawing on data collected from a
panel of major MFIs, this policy brief provides an overview
of the microfinance lending squeeze in Ethiopia and outlines
ways to overcome it. Sections one and two looks at the
impact of the COVID-19 pandemic on Ethiopian MFIs and on
their borrowers, respectively, and show how MFIs responded
to liquidity constraints by cutting off financing to MSEs.
Sections three and four discuss possible ways out of the
crisis, outlining four concrete ways to ease the squeeze and
highlighting new interventions in Ethiopia that provide
emergency financing to MFIs and the MSEs they serve. The aim
of this brief is to shed light on the lending squeeze in
Ethiopia, and to share lessons for post-pandemic
microfinance lending globally. |
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