Microfinance in the face of COVID-19: The case of Peru

Abstract

The COVID-19 pandemic, which began between late 2019 and early 2020, severely impacted the Peruvian economy, especially microenterprises. This context highlighted the need to analyse the effects of the health crisis on microfinance institutions, the main sources of financing for the country's micro and small businesses. According to the Ministry of Production, this segment represents more than 95% of Peruvian businesses and plays a key role in national economic growth. This research employs financial ratios proposed by the Peruvian supervisory authority and bankruptcy prediction tools widely used in the financial risk literature. Based on the analysis of financial statements, risk indicators, and insolvency probabilities, the study quantitatively evaluates the impact of the pandemic on the microfinance sector. The results paint a worrying picture, and therefore, significant government intervention is recommended to strengthen and support the sector during the country's economic recovery.