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 AP crisis and the virtually certain (at least) nominal debt default sends a message to global capital markets: the debt-to-equity ratios in the microfinance industry were too high. Indeed, the banks involved in rescheduling debt for Indian MFIs are demanding that the MFI management teams pledge all their existing equity and are refusing to make any new loans.