Paper short abstract:

This study investigates the effect of the COVID-19-induced decline in economic activities on the financial and social efficiency of microfinance institutions (MFIs). We find that the pandemic-induced impact decreases the financial efficiency of MFIs.

Paper long abstract:

“The global economy could suffer between $5.8 trillion and $8.8 trillion in losses – equivalent to 6.4%–9.7% of global gross domestic product (GDP) – as a result of the novel coronavirus disease (COVID-19) pandemic” estimated by the Asian Development Bank (ADB), May 2020.

The COVID-19 was first identified in China in December 2019, but the virus has spread rapidly across the globe. As of May 20, 2020, the number of confirmed coronavirus infections worldwide approached 5 million across more than 200 countries and territories, with over 90% of reported cases currently located outside China. The ongoing COVID-19 pandemic not only represents a worldwide public health emergency, but also has imposed massive and far-reaching economic cost globally. The spread of the virus itself and the containment measures attempting to mitigate it can bring production and consumption to a standstill. For example, high mortality and morbidity rates of COVID-19 reduce the labour supply which, in turn, hinders production. In a similar vein, social distancing policies and lockdown measures (e.g., store and factory closures, quarantine, and mobility limitations) aiming to reduce the transmission rate and curb the spread of the disease, may also result in a sharp and immediate decline of production in the economy. Moreover, when workers lose their income due to the mass layoffs, they tend to cut back on spending or reduce their ‘postpone-able’ social consumption (e.g., restaurants, movie theatres, pubs and clubs, travel and tourism). Firms may also delay their investments owing to heightened uncertainty associated with COVID-19.