How Can the Funding Needs of Microfinance Institutions be Met

1
How Can the Funding Needs of Microfinance
Institutions be Met?

• MFC IV Annual Conference
• Bratislava, May 18, 2001
• Presentation by
• Sarah Forster, MFC

2
Presentation Outline

• Features of Microfinance in the Region
• How do Regional MFIs Compare?
• Is Financing a Constraint to M/F Development?
• Experience of Specialized Wholesale Financial
  Intermediaries
• Proposed MFC Regional Mapping/Study on Financial
  Intermediation

3
Features of Microfinance in the Region

• Clients are generally literate, many are
  well-educated and most are used to secure
  employment
• High demand for microcredit in face of economic
  transition and increasing poverty
• Micro and SME development likely engine of
  economic growth and job creation

4
Features of Microfinance in the Region

• Different types of microfinance institutions
• specialized microcredit NGOs
• membership-based savings and credit institutions
• specialized licensed commercial banks
• commercial banks downscaling to reach m/e
  clients
• Young sector, with few large-scale, profitable
  MFIs
• Estimated 250 MFIs serving 0.5 million clients
• Sector expected to develop rapidly given high
  demand focus on building sustainable
  institutions

5
How Do CEE/NIS MFIs Compare? Size and
Profitability
6
How Do CEE/NIS MFIs Compare? Capital and
Liabilities Structure
7
How Do the Regions Compare? Capital and
Liability Structure
8
Is Financing a Constraint?

• High dependency on grant and concessional
  financing, particularly among NGO MFIs
• Limited commercial borrowing
• Limited equity investment
• Limited savings mobilization
• gt Donor Financing is Limited (plus is often
  conditioned)
• gt Could MFIs Shift Towards More
  Sustainable/Commercial Sources of Financing?

9
What Are the Constraints to Commercial Investment?

• Demand or supply issues?
• Demand side
• Lack of institutional and financial capacity to
  meet commercial financing standards
• Non-profit status/lack of appropriate commercial
  institutional forms
• Is there a role for intermediation between MFIs
  and formal financial sector to help build
  institutional capacity, investor confidence and
  financial flows?

10
Profund

• Incorporated in 1995 in Panama as a for-profit
  investment fund
• Shareholders Accion, SECO, BID/MIF, CDC,
  Calmeadow, Fundes, IFI, SIDI
• Business Objective Seek high return on
  investment while promoting the growth of
  regulated and efficient financial intermediaries
  serving micro and small enterprises in Latin
  America Caribbean

11
Profund cont.

• Financing Criteria
• financially stable institutions with a
  demonstrated ability to earn profits and a
  commitment to dedicate themselves to serving
  micro small enterprises
• Invests in 3 types of institutions
• NGOs that serve MSEs have decided to become
  formal commercial financial institutions
• Finance companies
• Licensed commercial banks
• Total commitments US18.86 million in 8
  countries

12
Profunds Current Portfolio

• Institutions Country Commitment Disbursed
  Instrument
• (US 000) (US 000)
• Banco Sol Bolivia 1,511 1,511 Equity (Common)
• Finamerica Colombia 3,651 3,651 Equity
  (Common) and Term Loan
• MIBANCO Perú 3,200 2,759 Equity (Common)
• Los Andes Bolivia 2,200 2,200 Subordinated
  Term Loan
• Banco Solidario Ecuador 3,700 3,700 Equity
  (Common) and Convertible Loan
• Interbank Nicaragua 800 800 Subord Loan
• Financiera VISION Paraguay 1,000 1,000
  Preferred Shares
• BanGente Venezuela 600 380 Equity (Common)
• Financiera CompartamosMexico 1,300 1,300 Equity
  and Sub. Loan
• CONFIA Nicaragua 900 900 Equity (Common)
• TOTAL 1 8,862 18,201
• TOTAL 18,862 18,201

13
IMI

• Founded in Frankfurt in July 1998 as a for-profit
  company
• Shareholders -- IPC GmbH, IPC Invest, Doen, DEG,
  ProCreditor, IFC
• Business Objective to acquire equity stakes in
  financial institutions in developing countries
  and transition economics that serve low-income
  clients
• Active investor -- equity participation plus
  advisory/management services by IPC

14
IMI cont.

• Financing Criteria
• already a sizeable business
• willing and able to develop a banking business
  oriented to micro and small enterprises
• prefer institutions that offer not only credit
  but also liability-side products e.g. savings and
  payment services
• corporate governance structure (for-profit)
• Total commitments US23.87 million in 18
  countries (9 countries in CEE/NIS)

15
IMIs Current Portfolio

• Microfinance Institution Country Investment date
  Amount in DEM IMI's current (planned)
  stake
• I. Current Investments
• 001 Microfinance Bank Georgia 12/98 489,000 12
• 002 Caja Los Andes (FFP) Bolivia 03/99 833,000 12
  
• 003 MEB-Banka BiH 04/99 1,000,000 19
• 004 MEB Kosova Kosovo 12/99 782,000 17
• 005 Micro Crédit National Haiti 01/00 710,000 2
  0
• 006 Microenterprise Credit Romania 01/00 1,019,00
  0 100 (25)
• 007 Micro Enterprise Credit Moldova 02/00 513,000
  42 (25)
• MEC Subordinate Loan Moldova 07/00 278,000
• 008 FEFAD Bank Albania 02/00 1,500,000 15
• 009 Financiera CONFIA Nicaragua 07/00 1,032,000 1
  8
• 010 NovoBanco Mozambique 10/00 841,000 25
• 011 Microfinance Bank Ukraine 11/00 978,100 10
• Subtotal 9,975,700

16
Common Features

• Seek high-performing, profitable MFIs
• Professional, technically competent managers
• Good governance
• Client-oriented product diversification
• Aim for long-terms profits, not short-term profit
  maximization

17
MFC Study

• Context Supports 3rd pillar of MFCs vision
• Capacity Building Support
• Microfinance Policy and Legal Reform
• Addressing Financing Needs
• Purpose Examine the Market Demand and Viability
  of Establishing a Regional Financing Mechanism to
  Increase the Quantity and Quality of Financing to
  Support the Scaling-up and Development of the
  Microfinance Sector in CEE/NIS.

18
Potential Value Added of an Intermediary

• To MFIs
• Potential long-term source of financing
• Reduces costs of fund-raising
• Allow focus on own mission and business strategy
  (not donor-driven)
• To MFI Sector
• Raise professional standards
• Ensures financing is market-driven and
  performance-based
• Provides bridge between local MFIs and financial
  sector

• To Donors/Investors
• Means of gaining local market knowledge and
  identifying good investment opportunities
• Reduces costs of project identification and
  appraisal
• Potential for pooling subsidized donor and
  commercial funds to structure appropriate terms
  and conditions to support MFI development

19
Issues to be Addressed

• Assess the Status of the M/F Sector in the Region
• Understand Demand/Financing Needs
• Assess Supply of Financing (donor commercial)
• Identify Gaps in Meeting Financing Needs
• Learn Lessons from Existing Intermediaries
• Determine Donor/Investor Interest in
  Intermediation Services financial and
  non-financial (e.g. market information, credit
  rating)
• Formulate Options and Recommendations

20
Process and Approach

• Participatory and Inclusive
• Responsive to Local MFI and Donor/Investor
  Concerns
• Core Sponsoring Institutions -- CGAP, IFC, OSI,
  USAID.
• Timeframe September 2001 June 2002
• Discussion and Feedback Welcomed!