Microfinance is a solution scalable to meet needs large and small. However, resources provided by the international donor community and private philanthropists—traditional sources of funds for microfinance—meet only a small proportion of the market demand. Only the financial markets have the resources readily available to close this gap, especially for those microfinance institutions (MFIs) that focus on the poorest people and who, because of regulatory constraints, cannot provide savings accounts—a potential source for financing that remains out of reach for many MFIs.
Grameen Foundation's Capital Management & Advisory Center (CMAC) connects leading, poverty-focused MFIs with both local financial and capital markets, which supports these MFIs’ efforts to make a difference in the lives of as many poor families as possible. CMAC focuses on catalyzing financing for more MFIs and addressing market gaps, namely:
- Most international financing is focused on the top tiered MFIs. According to CGAP, 90 percent of all international financing is to the Tier 1 MFIs and
- Over 70 percent of all international debt financing is in hard currency, exposing the MFI to large foreign exchange risks.
The center makes this possible in three ways:
- Developing and managing a range of Grameen Foundation-branded financial products that are simple yet flexible and meet the needs of MFIs globally, and cater to a variety of risk-return appetites among private funders.
- Establishing microfinance as a commercial investment opportunity by identifying, negotiating, and executing capital market opportunities in local markets, as well as presenting microfinance in terms that commercial investors understand.
- Emphasizing local markets as the primary source of MFI financing and spreading Grameen Foundation capital markets knowledge to and replicating successes in countries with large populations of poor people.
Microfinance institutions must be able to access capital to grow and continue to meet demand. Despite increasing competition in some areas of the world, microfinance sectors in many regions of the world have reached 10% or less of their potential demand. Grameen Foundation currently has two offerings meant to increase MFIs’ access to capital:
Grameen Foundation's Growth Guarantees program is one of the microfinance industry's largest financing efforts dedicated to ensuring local currency financing for rapidly growing MFIs. The structure of Growth Guarantees enables MFIs to borrow in their local currency, which mitigates foreign exchange risk. The program is developed in cooperation with Citigroup and donor-guarantors who provide their names and credit while continuing to earn returns on their individual investment portfolios. The program relies on a pool of $60 million to provide loan guarantees. The program is flexible enough to support high-performing MFIs around the globe that aspire to expand rapidly and are capable of managing sums of commercial financing. We leverage each guarantee dollar on average four times to catalyze large amounts of local financing for MFIs.
Since it began in 2005, our Growth Guarantees program has leveraged $48 million in donor funds into more than $200 million in local-currency funding for 24 MFIs, enabling them to help more than 1.2 million new clients (mostly women).
While the Growth Guarantees program targets more mature MFIs – those that are ready and equipped to manage large amounts of commercial financing – GF is now intervening in a systematic way to build up the next generation of MFIs. The Pioneer Fund will bridge the funding gap by providing direct financing to the next generation of microfinance institutions that are breaking barriers by working in remote or underserved areas and using innovative products and services that meet the needs of the poor.
The Pioneer Fund will initially invest in a select group of high potential early stage MFIs with catalytic financing to support their growth until they are able to access commercial capital and expand their funding base. At the same time, this funding will educate MFIs about the investor management process and help them advance along the funding continuum from reliance on grants or soft loans to the more commercial sources of financing that are critical to future growth. Pioneer Fund loans will go to high potential emerging leaders in the microfinance sector. One key aspect of the Pioneer Fund is to lead financing in markets that have not attracted much commercial capital, especially those in Sub-Saharan Africa, and to invest in MFIs targeting poorer regions.
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- Elevated Food Prices-Impact on Microfinance Clients Practitioners
- Microfinance Institution Life Cycle Case Study
- MFI Capital Structure Decision Making
- Microfinance and Capital Markets Speaker Series
- Thinking About Microfinance Through a Commercial Lens
- Tapping the Financial Markets for Microfinance