Responses to the Covid-19 Crisis

The COVID-19 pandemic has various negative implications for an MFI’s operations. Clients that cannot repay their loans on time and moreover withdraw their deposits could lead to major liquidity problems for an MFI. In addition, loan losses will reduce equity and may result in the institution’s bankruptcy. This is why we wrote an article for the responses to the COVID-19 Crisis.

Our document explains how the Microvision tool can be used by MFIs to develop different scenarios and stress-testing. These are important elements of any business continuity plan. Having a BCP in place would be a practical way to help management tackle the crisis and build institutional immunity. Additionally, it would also help investors, who need to receive confirmation of an institution’s preparedness and response to this crisis. A business continuity plan can be drawn up using quickly prepared scenarios. Including those that could arise in a crisis. This allows management to better understand the impact of the crisis on the institution. The plan would also allow management to anticipate issues. Managagement could then put measurements into place and appropriate risk-mitigation decisions taken (e.g. acceptable leverage could be determined, crucial human resources identified and safeguarded, liquidity managed).

Less than one year ago Microfact – an initiative of ADA and BRS  launched Microvision. This is a new tool for making financial and social projections. Within a short period of time, Microvision has proven to be a great tool that has allowed hundreds of MFIs to make simplified but valuable projections over a 5-year period for their business plans. 

Our publication is divided into 4 parts:

• Introduction to Microvision
• Adjusting business plan projections
• Preparing a business continuity plan with scenarios and stress-testing
• Building scenarios in Microvision

Institutions best placed to deal with the Covid-19 crisis are those that have a sound understanding of the risks existing in the current environment. Also, those that are able to manage them appropriately, while maintaining the confidence of investors and other stakeholders. The projections and scenarios created using Microvision can thus make an essential and valuable contribution to an MFI’s Business Continuity Plan for tackling the current crisis.

Optimists among us believe that the pandemic will be over in the near future. Others think it will take more time to recover from this crisis. But all of us are convinced that sooner or later better days will return – for the microfinance sector as well. Even in better times, do not forget that Microvision can also be used to create positive or “best case” scenarios, with an optimistic set of assumptions.

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