The Impact of the Global Financial Crisis on Rural and Microfinance in Asia

The current global financial crisis has hit both the real and financial sectors with unexpected severity and uncharacteristic speed, not ever witnessed since the Great Depression of the twentieth century. A World Bank update for East Asia in the wake of the global financial crisis likened the coping being taken by countries that have been impacted by the crisis to "navigating the perfect storm" (World Bank, 2008)2. During the pre-crisis situation, the rise and subsequent drop of food and fuel prices have strained the resources and policymaking skills of developing countries. The global financial crisis, which emanated from failing sub-prime mortgage markets in the U.S, caught policymakers off-balance as liquidity in the financial markets rapidly started to dry up followed by sharp rises in short-term interest rates, a fall in equity markets and great volatility in foreign exchange rates. The speed of economic reversal caught even the most experienced observers by surprise. The East Asian economy went into sharp reverse everywhere (Drysdale, 2009). Growth projections were revised as countries in East Asia realize that the global financial crisis would have longer and lasting effects than previous crises, which had the developing countries as source. This global financial crisis is different from prior crises in developing countries as it is generated from North to South and it has happened in a much more integrated global setting. Because the world economy has substantially integrated, few countries will be spared the pain (Magnoni and Powers, 2009). Indeed, the current crisis is quite unlike the Asian financial crisis that buffeted the region in 1997-1998 because it is global in scope and deeper in its impact. It 2 The World Bank economic update for the East Asia and Pacific Region on the impact of the global financial crisis is a report with the title "East Asia: navigating the perfect storm.download