Coping with the Price Spike: Effects of Food and Fuel Inflation on MFIs and Borrowers

  • Date Posted: June 2, 2010
  • Authors: Ray Rahman
  • Organizations/Projects: Microfinance Analytics
  • Document Types: Evidence or Research, Primer or Brief
  • Donor Type: U.S. Agency for International Development

This microNOTE investigates the effects of food and fuel inflation on microfinance institutions (MFIs) in Bangladesh, Haiti and Nicaragua. The study finds that costs have increased in all the countries at a far greater rate than borrower income and this has in turn increased loan delinquencies and risks. The majority of the MFIs are unprepared for the full effects that inflation will have on the institution, both from a portfolio risk management and operational point of view. Some now allocate a greater proportion of the portfolio to agriculture-related loans and a lesser portion of loans for consumption. Surveyed borrowers have seen their costs rise across the board, although their income has increased in Bangladesh. The full extent and repercussions are, however, yet to be fully understood.