With rigorous economic research and practical policy solutions, we focus on the issues and institutions that are critical to global development. Explore our core themes and topics to learn more about our work.
In timely and incisive analysis, our experts parse the latest development news and devise practical solutions to new and emerging challenges. Our events convene the top thinkers and doers in global development.
Given the microfinance crises in various countries in the last few years, I've been wondering which place might be next. Partly inspired by the format of Daniel Rozas's analysis of Andhra Pradesh a couple of years ago, I made scatter plots of some indicators of potential danger, such as number of microloans outstanding per adult (someone 15--64 years old) and the rate of growth in number of loans. I was curious whether crisis countries could be characterized statistically, and which seemingly tranquil countries they resembled.
To various indicators on the level and growth of lending, I added one on the financing structure of MFIs: the share of assets funded by deposits as opposed to borrowings from foreign investors or equity (complete spreadsheet). (See table 7 of chapter 8.)
One big limitation of this exercise is that the nation may be the wrong unit of analysis. India's difficulties have mostly been in Andhra Pradesh; Pakistan's in Punjab; and Bosnia and Herzegovina's in Tuzla. National averages can obscure local and regional developments.
Having data on Andhra Pradesh at my fingertips, I added it. Note that national figures are for 2008 or (for growth rates) annualized over 2004-08. The AP numbers are for 2010 or 2009--10.
I should say that I arrived at the three indicators graphed below partly through data mining. They seemed to best distinguish the crisis countries from the non-crisis ones (both visually, and in statistical significance tests in a probit regression, if you know what that is). So there is a just-so quality to this analysis. Time will tell if it is merely a retroactive rationalization of history or the basis of a model with predictive value.
The "Loan growth vs. loans/adult" graph (second tab) puts most of the crisis places along the northeast frontier---high numbers of loans and/or high growth. However, it is worth noting given all my emphasis on the problem of fast growth, that while these places were not the fastest expanders. Also interesting is that countries with mature markets are next to ones that got in trouble. Does Nicargua's proximity to Bolivia and Peru mean the latter are about to go down the tubes too?
Maybe not. If you look at the other graph (first tab), you'll see how factoring in deposit-taking changes the picture. Aside from Nigeria, all the crisis places had very low deposit ratios. Their growth was primarily financed by outside investors (including domestic banks in India and Morocco), and that growth proved brittle. Interestingly in the bottom right of this graph, Armenia shows up alongside the unfortunate Bosnia and Herzegovina, Nicaragua, and Andhra Pradesh. Put Armenia on your watch list.
For the US Development Policy Initiative’s inaugural Voices of Experienceevent, three former Treasury Under Secretaries for International Affairs took the stage: Tim Adams of the Institute of International Finance, Lael Brainard of the Federal Reserve, and Nathan Sheets of Peterson Institute for International Economics. The conversation, moderated by CGD Board Member Tony Fratto, revealed the “esprit de corps” of the International Affairs team, and covered everything from the central yet oft under-the-radar role the Office of International Affairs plays in the formulation and execution of international economic policy, to each Under Secretaries’ proudest moments.
The first thing we should be asking is why now in particular, since conditions have not really changed much in the past few months. For example, back in September, there were large uncertainties in the global economy. China’s economic slowdown was causing alarm. Volatility in international capital markets was high. The appreciation of the US dollar was hurting US exports, which could (yet) mean slower US economic growth. That was not the time for the US Federal Reserve to up interest rates. But now it is – and here’s why.