The Microfinance Contagion Scenario

Harvard Business Review

In other words, at current repayments rates, any MFI with more than 12% of its portfolio in AP is at risk of insolvency. The role of equity is to assure bondholders that management will act cautiously since equity holders (both management directly and equity investors who at least theoretically monitor management) will incur first losses. At the prevailing ratios, management failed to act prudentially.