Like most global investment banks, Morgan Stanley is having a rough go at it these days. And it appears that its financial woes on the macro level have claimed a new victim: its microfinance business.

Morgan Stanley formed its microfinance institutions group last September, proudly calling it "the first time that an investment bank has established a group dedicated to serving microfinance institutions."

Today, that group looks more like a small tea party.

Ian Callaghan and Ellen Brunsberg, the two executives charged with overseeing the microfinance efforts from Morgan's London office, are no longer with the firm, Portfolio.com has learned from several people in the industry.

Moreover, the group that consisted of about a dozen dedicated employees at launch and around 20 others on a rotational basis from other departments in the bank, has dwindled down to just four or five employees, according to one source close to the bank's unit.

Several calls to Morgan Stanley for confirmation went unreturned. A receptionist confirmed that Brunsberg is no longer with the firm, and Callaghan's email was returned as an out-of-office reply without explanation.

Morgan launched the formal group to build on its existing success in the growing microfinance industry. It was meant to serve all the banking needs of microfinance institutions, which raise money from the capital markets and lend it in very small amounts to the working poor in emerging countries.

In recent years, the bank successfully structured two collateralized loan obligations worth $210 million with Geneva-based BlueOrchard Finance. The funds were dispersed to thousands of recipients in 15 countries.

In June, the Financial Times and the International Finance Corporation named the second C.L.O. its "Sustainable Deal of the Year" award. Partially rated AA by Standard & Poor's, it was the first such debt structure to be rated by any ratings agency.

Of course, the market for complex debt structures has changed considerably since early last year, when the award-winning Morgan Stanley C.L.O. was formed. Wall Street firms are digging out from the mess they made after financing home loans for America's poorest, so it's not surprising that they are now more reluctant to securitize loans for the world's poorest.

"There is some talk now about Morgan Stanley thinking that perhaps they'll even abandon this area because of its small size and because of problems with C.D.O.s and C.L.O.s," said one microfinance executive who works with the bank.

But others in the industry believe that Morgan Stanley is making a mistake by cutting back in microfinance, and that the demand on Wall Street is still strong for such products.

"They are making a terrible mistake," says another microfinance executive. "They had a great group, and it was really a morale booster from within the firm. There is still a lot of appetite for it."

By Megan Barnett and Daniel Sorid

Update 3:30pm: Morgan Stanley has responded: "Morgan Stanley remains committed to Microfinance and continues to pursue opportunities in the space. We are constantly evaluating business conditions to ensure we are right-sized for the current market environment and we continue to utilize employees across the Firm for this initiative."