microfinance risk and the future
by Adam Lindquist I spoke with Desara Sina, Head of the Risk Management for Albania-based Fondi Besa jsc, about how microfinance has been impacted by recent worldwide events and where it will go in the future.
Adam
Can you share how COVID impacted your organization and/or how you feel it impacted microfinance in general? Desara COVID-19 is already the key word of our daily life that came as a sudden threat to life and lifestyle all over the world. The exponential spread of the number of people infected with COVID-19 correlates with the economic downturn, which came as a result of measures taken by the government to keep under control the striking power of this virus and save health systems. The effects of the closure for months caused colossal financial difficulties. As a result, the economy went into recession. For many businesses, the anti-COVID measures proved fatal, while for many others it brought them to the brink of bankruptcy. This risk for an unconsolidated economy like Albania’s is that it had major consequences. Small businesses and the self-employed, who were shut down due to quarantine, illness, or insecurity to provide services to clients, found themselves without income. On the other hand, utility costs, taxes, and other liabilities are comforted in their balance sheets in difficulty and here for hundreds of thousands of individuals and families. In this context, the microfinance sector, having a wide reach in the country’s economy as a leader in financing small business, farmers, and the basic needs of the Albanian family, accounting for about 68% of the total number of loan applications instead, would necessarily be impacted by the situation. In the context of the COVID-19 pandemic, although the government’s plan to postpone customers’ liabilities to the financial system sounded hopeful at first; in fact, these liabilities would simply accumulate to be paid later. But this process also posed a risk to the microfinance sector. Unlike the banking sector, which not only has sufficient liquidity due to the collection of customer deposits but also due to the supply of liquidity from the Bank of Albania, microfinance institutions do not have these opportunities. The funds used by microfinance to lend to their clients are internal equity funds, financing instruments (such as bonds or other securities), and the lines of financing they receive from larger financial institutions, such as second level, or regional development ones.
Intelligent Risk - July 2021
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