Benchmarking Microfinance in Central America 2010

After a difficult year in 2008, in combination with continual after-effects of the international financial crisis impacted the first semester of 2009, the Central American macroeconomic situation gave signs of recovery during the year’s second semester. The behavior of the main variables formed a “V” shape, showing a decreasing trend from 2008 until the middle of 2009, followed by a recovery during the remaining part of the year.

According to SECMCA[1], the regional IMAE[2] halted its negative variation rate until it reached slightly positive rates (0.5% in Dec 2009); there was also an increase in exports but in levels still not comparable to those of previous years; similarly, imports reduced their decreasing trend, responding to the evolution of the regional domestic activity; although inflation grew slightly towards the end of 2009, in general it showed a strong deceleration, going from 9.1% in December 2008 to 3.2% in 2009; and international reserves had a record growth, ending in USD 18,654.7 millions (USD 16,654 millions in 2008).

The scenario just described could suggest that the different economic sectors in Central America are in a process of recovery.  In actuality, the Central American microfinance sector closed 2009 with discouraging indicators, suggesting the depth of the crisis particular to the credit activity that will probably extend until the end of 2010.

The effects if this were seen mainly in three aspects: (i) reduction of MFI size due to a cleansing of client portfolios and exit of funds from the industry; (ii) severe deterioration of the institutions profitability, resulting in a limited capacity to cover their total expenses, including expenses for financial adjustments, and; (iii) fast growth of credit risk, with some specific countries showing greater deterioration.