Interesting times the world is facing with this pandemic, it becomes even more interesting when you consider the demand and supply gap of financial inter mediation which hitherto exited in the MFI space. This is especially so for poorer nations where there already exist a large number of undeserved. Clearly, there would be losers (lots of them) but also there would (be some) winners, its not a hopeless loss loss situation.

My contribution however, drives towards looking at those key elements that will help MFI identify and focus on the "customer" segment that will deliver wins both in the short and long run while other recovery plans are on going.

1. Technology as the enabler and equalizer: Digital technology will become the game changer as the world of work and business changes. Product and services (loans, savings, deposit, remittances, payments, insurance) may not change significant, but the method(s) of delivery will certainly have to change radically.

2. First movers: Early adopters of end to end technology in customer acquisition, underwriting, loans origination, payments, remittances, collections and so on will win as the world slowly (or hurriedly, as the case is today) move away from cash handling.

3. Positioned for DFI support: MFIs that shows a strong position and are properly aligned to get DFIs support and donor agency grants, will win during and post covid 19 pandemic.

We are glad to see so many comments on the FinDev Forum where the blog was originally posted. The comments emphasize the importance of reassuring staff, communicating with clients, and providing emergency support to both. And it is obvious that the community is exploring creative ways to stay in touch, convey essential information, and keep spirits up: radio and SMS among others. In many countries MFIs of all types – banks, finance companies, coops – serve as an essential and in many cases the only link for many clients to the formal economy and as investors and governments are formulating their response on multiple levels – health, economic, food security, education, domestic violence – we have to remind them of the vital and often unique channel that many MFIs represent.

With collections severely impacted for many MFIs, their first line of defense is their cash reserves. In an excellent recent article on the MFI liquidity crunch, Daniel Rozas has estimated the ability of MFIs to meet operating expenses, deposits outflows and debt service based on historical cash reserves and drawn some encouraging conclusions. However, analysis of his results suggests that a significant proportion of MFIs – upwards of 25% -- would be stressed, particularly smaller MFIs. Furthermore, the analysis does not factor in staff and client demand for emergency funding to compensate for household income loss due to lockdowns. Even for those MFIs in a position to continue to meet scheduled debt service the problem we foresee is that this undermines the principle of equitable burden sharing and likely makes agreement on eventual recapitalization and balance sheet strengthening much more difficult. If one creditor is paid out in May and in June the MFI seeks fresh money or worse yet, if some creditors continue to be paid while others are asked to provide liquidity and fresh equity successful stabilization is likely to be very difficult.

It is because of the potential need of clients, staff and MFIs for both liquidity and balance sheet support that we recommend that the industry organize itself up front to prepare to respond. The response is unlikely to be limited to short term liquidity support. Obviously offering a blanket moratorium does not mean that stronger institutions cannot, if they so choose, continue to service loans and stay out of the “ICU” to use Geert’s analogy. But the different stakeholders need to begin to put in place the consultative and coordinating structures and guidelines that will enable them to mount a response and equitably allocate losses and recapitalize MFIs if impact on clients is to be contained and destruction of industry capacity limited. We are very glad to see CGAP moving quickly to take up this coordinating role in recent weeks.

This is not a challenge that creditors can address alone.It will require coordinated action together with shareholders, donors, regulators, rating agencies and others.Such coordination will be much easier if the groundwork is laid up front rather than retrofitted onto a situation where some actors have already committed resources under assumptions that other stakeholders may not subsequently accept.Who is a preferred creditor?How to deal with free-riders?How can different instruments – interest rate reductions, principal haircuts, extended maturities, asset purchases, fresh money – be equilibrated so as to preserve the perception of equity in sharing the burden.A coordinated response that preserves much of the microfinance industry’s unique relationship with many of the world’s most vulnerable requires that a coordinated approach to such questions be organized sooner than later.