Predictions over the future of of microfinance vary between optimism and downright doom and gloom.

Inflation is thought to be the real criminal for any struggles Microfinance Institutions (MFIs) may face, leading to an increase in MFIs operating costs, leading to an extra burden on clients, most of whom are the poor. In addition MFIs may face difficulties as the cost of commercial borrowing rises – money is simply becoming more expensive. Some reports suggest that borrowing costs have risen by up to 4.5 % in some markets. Funding from development institutions like the World Bank’s International Finance Corporation (IFC) is likely to be stable but aid budgets are being cut and other sources are being threatened. Concerns are being raised over the refinancing of existing debt and reports by the IFC show that the share of borrowers 30 days delinquent on their loans has increased from 1.2% before the crisis to between 2% and 3% now. Although still low by most loan standards the Economist argues that ‘a prolonged credit crunch could make microfinance clients start to look more like those hapless subprime borrowers’.

However, Mohammed Yunus, Nobel Peace Prize winner, and founder of the famous Grameen Bank, argues that “we have not been touched in any way by the financial crisis. The simple reason is because we are rooted to the real economy – we are not paper-based, paper-chasing banking. When we give a loan of $100 behind the $100 there are chickens there are cows. It is not something imaginary“.

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Some research suggests that microfinance is relatively safe from the downturn because it ‘performs differently to the mainstream’ and is ‘counter cyclical’ and is very different to the subprime loans that some critics have compared microfinance to. This is because it lends small sums of money to people in the developing countries so start small, profitable businesses not overpriced homes. Indeed ‘many of those businesses serve local needs which has more merit at a time when exports are collapsing’. The Economist argues that the Microfinance industry is ‘sub-par but not sub-prime’.

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