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. 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. MFIs have been bailed out before after crises — in Nicaragua and Bosnia for instance — and so we should also already be worrying about moral hazard in the industry.