Reduced business income, fewer income sources and lower remittances are taking their toll on microfinance clients in Eastern Europe and Central Asia, generating income that barely covers the cost of food, according to CGAP* in the beginning of 2009.

Microfinance institutions (MFIs) are not immune to the financial crisis, which has become an economic crisis and could move to an employment crisis that pushes 50 million to 90 million people into poverty. They will join the 130 million to 150 million people who won't be able to move out of poverty because of the food crisis that started early last year.

'Many poor households are struggling with the many consequences of the global food, financial, and employment crises,' said Elizabeth Littlefield, CGAP's chief executive officer. 'Their income sources, like revenue from small businesses or from money sent from families working abroad, have become more erratic. At the same time, many expenses, like food, are still far higher than before. Savings are thus being withdrawn and loan repayment rates to MFIs are worsening.'

Despite the many challenges arising from the financial crises World Vision-affiliated MFIs in the Eastern Europe region, including the Balkans and Caucasus, are striving to maintain stable operations and ensure a sense of security for their clients.

'Microfinance institutions in our region are facing serious problems but also opportunities. The current situation opens horizons for new markets and clients, as traditional banks have almost completely stopped their lending to small businesses and farmers. It's exactly in difficult times like this where microfinance shows that it's different from commercial banking', said Gerlof De Korte, VisionFund Regional Director.

The MFIs are under pressure to reduce budgets and optimise work but also to try and gain support for sufficient funds to maintain the MFIs through this downturn.

As clients struggle with reduced income, the quality of the portfolio of the MFIs has deteriorated. Their portfolio at risk has increased in the past two months as a direct result of the financial crisis. MFIs have adjusted their lending policies and procedures to better protect clients from becoming over indebted and improve the portfolio quality.

Now more than ever, World Vision MFIs in the Balkans and Caucasus need to stay financially stable, not only for their existing clients but also for potential clients.

Of all the World Vision regions, the Eastern Europe region has the largest loan portfolio making up more than 72% of the global portfolio. Seven MFIs showed a growth of 12.8% in 2009 in the number of active borrowers. The outstanding portfolio of US$274 million was invested in more than 151,000 clients by March 2009. Microfinance impacted nearly 144,000 children in the same period.

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*CGAP is the Consultative Group to Assist the Poor; an independent policy and research centre dedicated to advancing financial access for the world's poor.

Questions can be directed to VisionFund's Regional Director in MEER, Gerlof De Korte at: gerlof_dekorte@wvi.org

For more information about World Vision's work in microfinance please visit: http://meero.worldvision.org/sf_loanstobreakpoverty.php