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Author: Patrick Ball

Category: ,

Date: 11 December 2020

Verdant Capital Microfinance Survey 2020

Verdant Capital Microfinance Survey 2020

Verdant Capital’s 2020 IFI survey points to a year of transition ahead.

Verdant Capital’s 2020 survey of Inclusive Financial Institutions points to a year of transition ahead, in terms of accessing capital markets, restructuring relationships with borrowers and changed business models. The survey also looks at steps taken by IFIs to weather the storm presented by Covid-19 and related economic dislocation and to support clients. The key takeaways are summarised in this report.

57% of respondents indicated that they expect to raise equity or equity-like capital in early 2021. This is consistent with Verdant Capital’s experience that IFI clients are looking to raise capital to fund future portfolio growth in the light of “lost” retained earnings in 2020. Of these respondents, 56% attributed the plans to raise capital as being to support loan portfolio growth (the other answers were to meet regulatory capital requirements, or to “strengthen the balance sheet”).

Similarly, 70% of respondents indicated they expect to raise new debt funding in early next year, indicative of expected robust demand for credit from MSME-clients.

In terms of strategy, 46% of respondents said they expected significant changes to their business model as a result of the pandemic. The two most commonly selected changes were (1) distribution channels and (2) lending procedures, with institutions reporting a range of measures to tighten lending policies. In terms of the distribution channels, a number of our clients have spoken of new digital channels, or of “switching off” some traditional channels to force clients on uptake digital channels already available (e.g. reducing the number of physical branches). Consolidation seems to be one strategy that does not appear to be high on the agenda in response to the pandemic with only 42% of MFIs saying they would consider making an acquisition if a suitable target became available and only 8% said they would consider selling.

Indicators of possible turbulence ahead include the fact that 65% of respondents indicated that their regulators provided important measures in terms of Covid-19 relief, including more flexible consideration of past due loans and less stringent provisioning measures. Furthermore, 81% of IFIs said they had reduced rates, fees or provided repayment moratoriums to their clients in response to the pandemic. Of these 60% said they expected to reverse these positions in “early 2021” – so potentially interesting times ahead.

The full survey results are available on our website at: Verdant Capital Microfinance Survey 2020

For more information in the meantime please email a member of the Verdant Capital team.

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