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IFC To Start $100M Microfinance Debt Fund

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Wednesday, 07 March 2012 07:17

International Finance Corporation (IFC), the private sector investment arm of the World Bank Group, along with two other investors, will set up a $100 million debt fund called Micro Finance Initiative for Asia (MIFA), to address the funding needs of microfinance institutions in developing and underdeveloped economies. Final decision will be taken at the fund’s next board meeting to be held on April 9.

According to IFC, the MIFA Fund will be funded through 3 classes of shares. “Initially, the investors are expected to be IFC, KfW, and Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (German Federal Ministry for Economic Cooperation and Development,” an IFC release stated.

The fund has a target size of $100 million, including up to $25 million in donor-funded concessional funding. IFC’s investment in the fund is proposed to be up to $20 million in mezzanine shares.

The Luxembourg-based fund will set up special purpose vehicles in Mauritius and India. The fund will make its debt investments across Asia, including East, South and Central Asia.

“The project is in line with the IFC microfinance strategy for increased outreach in South, East and Central Asia, especially in large countries like India and China, home to 40 per cent of the world’s population. Microfinance penetration rates in this region remain among the lowest, globally,” the release said.

By supporting the expansion and sustainability of well-performing MFIs, the project will improve access to finance for thousands of micro and small borrowers. This, in turn, will stimulate growth, employment generation and poverty alleviation in the region.

IFC claims that the fund will facilitate access of Asian emerging market MFIs to commercial funding that is better tailored to their needs. It will reduce the volatility of MFI loan portfolios, as currently most MFIs are unable to properly address the currency mismatch risk. The fund also aims to provide longer-tenor funding and subordinated debt products, a clear need for MFIs at present.

In India, the Rs 23,000 crore microfinance industry has been under stress after the Andhra Pradesh government banned the exorbitant interest rates the institutions charge to small borrowers. The MFIs normally charge higher interest rates due to the higher cost of capital and higher risks involved with repayments of smaller loans.

According to the latest RBI data, bank lending to micro-credit through self-help groups or through NBFCs was less than 1 per cent of the total bank credit, amounting to around Rs 21,000 crore.

IFC may lend $50 million to support Chinese microfinance market

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Microfinance Focus, February 28, 2012: International Finance Corporation (IFC) has proposed to lend $50 million to Fullerton Credit, China, to increases financial access for the underserved micro and small business enterprises and the self-employed mass market.

The loan will be extended in local currency RMB to Fullerton Credit, Sichuan, Fullerton Credit, Chongqing and Fullerton Credit, Hubei.

The three companies together with a total of 22 branches across three provinces, are each headquartered in Chengdu, Chongqing and Wuhan respectively.

They are all fully owned by AF Management Service which is incorporated in Singapore and further 100 percent owned by Fullerton Financial Holdings, a fully-owned subsidiary of the Government of Singapore’s Temasek Holdings.

IFC believes that the companies have potential to become model institutions in China in serving the MSEs with a novel business model.

IFC is providing another $15 million to Costa Rican financial cooperative COOPENAE for expanding its operations in the country. IFC’s contribution is a part of an initiative supported by the Spanish Fund for Latin America and the Caribbean that will provide advisory services to help COOPENAE identify areas for improvement in its current micro and small enterprise credit operations.