Responsible Investment Management and Advisory Services

Resilience of Micro-entrepreneurs Tested

In previous years, the Caucasus & Central Asia region has been one of the main drivers of portfolio growth for Triple Jump since the establishment of the Tbilisi office in 2011 and the rapid growth of MFIs in the region. However, 2015 has been a year of economic deterioration and particular depreciation of local currencies as most of the economies are linked with Russia, a country in recession due to western sanctions and declining oil prices.

As micro-entrepreneurs feel the burden of reduced revenues, MFIs saw an increase in late payments. Also, as the local currencies have become more volatile, it is increasingly difficult to provide loans in these currencies. This applies both to the MFI and to MIV’s like Triple Jump that have to hedge their exposures in foreign currency to ensure the funds under management are not affected. This results in a substantial increase in costs of local currency loans and Triple Jump therefore expects a high level of dollarization to return in the region.

Given the current situation, we do not necessarily expect significant improvements for the coming months, and are aware that the situation could potentially worsen if sanctions on Russia were to be tightened. However, we should keep in consideration that microfinance was designed to function under difficult macro-economic circumstances. In the past, micro-entrepreneurs and small farmers have shown a remarkable capability to adapt to currency volatility and economic downturn.

In these difficult circumstances, MIV’s and DFI’s can make a real difference by continuing to support the MFIs and their end-users. Even if growth will be limited, micro-entrepreneurs and small farmers still need access to finance to ensure survival of their businesses and sustain their livelihoods.

Gerlof de Korte
Deputy Head of Debt