Micro-bubble or Macro-immunity? Risk and Return in Microfinance: Lessons from Recent Crises in Latin America

Conclusion

Returning to our initial question, the quality of MFIs’ assets tends to reinforce the view that there is no “micro-bubble” in the sector. The capacity of Latin American MFIs to maintain good portfolio quality in times of crisis should reassure investors seeking confidence in the risk-return profile of microfinance investments. The main risk, as shown by the Argentinean case, is liability management. Currency mismatches and liquidity issues are progressively being addressed and should remain at the centre of our attention. The heavy concentration of investments in a few MFIs is becoming a risk that will probably continue to grow and that requires further public-private coordination. The best way to move forward is to adopt innovations such as currency hedging, emergency liquidity funding and credit bureaus without undermining the distinct methodologies and structures MFIs have created, which contrast to those of typical commercial banks.

Keywords

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I would like to thank Fernando Lucano, Louise Schneider, Maria Otero, Camila Van Malle and Marc Flandreau for helpful conversations and comments.