Dr. Ganesh Thapa, International Fund for Agricultural Development (IFAD)¹ senior economist predicts greater leverage for microfinance institutions (MFIs) despite financial crisis. How will this leverage be secured? Dr. Thapa recognized the important role of MFIs to rural households including farmers, landless people, and small entrepreneurs. MFIs provide small loans to the poor allowing them to protect, diversify, and increase their sources of income. By increasing household income, poverty is reduced. MFIs also have positive effects on nutrition and women empowerment. In South Asia (i.e., Bangladesh and Nepal), MFIs made women important decision makers both at the household and community level.

MFIs are relatively more resilient compared with established banks. However, MFIs are now more linked to domestic and international markets, which means that effects are greater, more complex and unpredictable during crisis. As household incomes suffer, MFIs can experience difficulty in loan repayment. In the long run, this translates to poorer loan portfolio and inability to lend, which will have major implications to the poor.

He noted that the financial crisis caused a significant decline in economic growth in Asia even in big countries such as China and India. The crisis manifested differently per country; China and India experienced slowing exports and weakening investments, respectively. On the other hand, ASEAN countries showed declining economic activity driven by food and fuel crises.

Dr. Thapa recommends that in order to gain financial growth, countries need to maintain export growth, invest in education, and improve on the government’s economic stimulus factor. Expansion of the domestic demand by building roads, irrigation canals, and other infrastructure that can potentially create more employment will allow more people to spend thereby impacting on aggregate growth and income distribution.

In conclusion, Dr. Thapa said that the financial crisis is a challenge; however, it should also be viewed as an opportunity to design new financial products and devise better risk management strategies.

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Report based on Agriculture and Development Seminar Series (ADSS) presentation of Dr. Ganesh Thapa entitled "The Impact of Financial Crisis on Growth, Poverty, and Hunger in Asia and the Pacific Region" held on 25 August 2009.

¹ IFAD is a specialized agency of the United Nations established as an international financial institution in 1977 to finance agricultural development projects primarily for food production in the developing countries. Working with rural poor people, governments, donors, non-governmental organizations and many other partners, IFAD focuses on country-specific solutions, which can involve increasing rural poor peoples' access to financial services, markets, technology, land and other natural resources. (www.ifad.org)