June 24, 2020

Boosting Relief and Recovery through Microfinance

Boosting Relief and Recovery through Microfinance

As the world grapples with the COVID-19 pandemic, the impact on people and livelihoods is likely to be felt for months, even years, to come. Researchers warn that up to half a billion people could slide into poverty globally, reversing three decades of progress. Governments have recently moved to jumpstart economies and ease social restrictions, but months of lockdowns, layoffs and stay-at-home measures mean it will take time for people and businesses to bounce back.

In developing countries especially, where most people survive on the informal economy, the road to recovery is likely to be even longer and steeper. According to estimates, some 1.6 billion people in the informal economy could lose their livelihoods as a result of the pandemic. The pressures on, and limited resources in, developing economies make it difficult for governments to provide adequate—if any—relief support. That’s why a growing number of investors, donors, and other actors have rallied to step in and support low-income and vulnerable populations during the pandemic.

Microfinance institutions (MFIs) can be critical partners in reaching the most affected populations effectively and efficiently. As institutions that serve people at the base of the economic pyramid—where the need for assistance is greatest during crises—MFIs already have the clientele, infrastructure and trust necessary for an impactful COVID-19 response. Against this background, FINCA Impact Finance recently helped form the Microfinance Coalition to add the industry’s voice to the COVID-19 response. The institutions in the coalition collectively serve more than 80 million people, nearly three-quarters of whom are women.

If leveraged strategically, the world’s MFIs could save millions of livelihoods. The access they provide to credit, savings and other financial tools for self-employment activities will be even more needed in a post-pandemic world in which formal employment has been decimated. They can be core partners in putting emergency relief funds into the hands of the most marginalized until the economy starts to rebound. And they can leverage their offices and agents in the distribution of emergency supplies as well as up-to-date and accurate information about the virus.

But to do any of this, MFIs need assistance and support from investors, policymakers and donors. MFIs need their investors to work with them to allow them to stay in business. They need policymakers to ensure that measures taken to protect big banks that primarily serve the well-off also protect small banks that serve the poor. And they need donors to help them cover the losses that they are likely to incur and continue to onboard the world’s poor into the digital economy.

The Microfinance Coalition stands ready to partner in COVID-19 relief and recovery efforts.