The Netherlands Development Finance Company (FMO) was founded by the Dutch government in 1970 as a means to stimulate sustainable growth in developing economies through private sector investment. FMO funds financial institutions or companies in developing countries by investing in housing, energy, and financial private sector projects in emerging markets.
According to FMO’s annual report in 2008, 28 percent of FMO’s committed portfolio investments are in Africa, 25 percent in Asia, 23 percent in Europe and Central Asia, 22 percent in Latin America and the Caribbean, and the other two percent in non-region specific areas. [2] The company is structured such that the government owns 51 percent of shares, large Dutch banks hold 42 percent, while employers’ associations, trade unions, Dutch companies and individual investors hold the remaining seven percent. Its activities are financed through various Dutch government funds, as well as through external commercial investments, which allows the company to take on a higher level of risk. [1] The company has received an AAA rating from the independent credit rating agency, Standard & Poor’s, since 2000. [8]
This article aims to highlight a few of FMO’s key initiatives in the field of microfinance in the past few years.
FMO’s involvement in microfinance is either through its own products and services for investment (FMO A) or through the Micro- and Small Enterprise Fund (MASSIF), a local currency fund managed on behalf of the Dutch government. MASSIF, created in 2006, aims to provide financial access to SMEs and their financial intermediaries. In general, the three types of intermediaries that are clients of MASSIF are commercial banks that want to increase client base, MFIs, and NGOs. [1] The 2008 annual report states that MASSIF’s portfolio reached a total of about €380 million (USD 557 million), [9] which has already has surpassed the estimate that the fund would reach €300 million (USD 440 million) by 2010. [9], [10] Through its clients, the company has been able to reach out to approximately 10 million SMEs. [2] In September 2009, The Dutch Ministry for Foreign Affairs increased MASSIF’s funding by USD 22 million, intended to go towards small MFIs that are lacking sufficient funding during the economic crisis. [9], [12]
In September 2007, FMO, along with other European and African development finance institutions and banks, helped establish the USD 560 million Currency Exchange Fund (TCX), a fund that focuses on currencies not normally covered by market providers and aims to provide risk management tools to investors in emerging markets. [4], [11] In October 2008, FMO co-funded Microfinance Currency Risk Solutions (MFX), a fund based in Washington D.C., by providing a USD 200,000 grant, so that MFX could help MFIs manage currency risk and make hedging accessible in developing countries by working closely with TCX. [3], [4], [11] The company reported that whereas other banks are often unwilling to lend in local currency due to high risk, FMO specializes in local currency lending, which, according to FMO, makes it easier for intermediaries to provide SMEs with products and services. [1] It also claims that providing long-term loans and equity in local currency allows FMO to assume currency risk that occurs due to volatility in price changes of currencies, taking the risk off of intermediaries and SMEs. FMO is able to do this since it hedges its own currency risk through the TCX. [1]
In addition, in a press release in June 2009, LeapFrog Investments announced that FMO and other institutions and companies helped raise USD 44 million for what LeapFrog claims to be the “World’s First Microinsurance Fund” and a “breakthrough for microfinance and alternative investment.” [13] FMO representatives strongly supported this fund by investing USD 6.4 million in the LeapFrog Inclusion Fund, which aims to invest in businesses to bring insurance to 25 million people in poverty. [14]
Also, in August 2009, according to a MicroCapital.Org story, FMO offered a USD 5 million credit line to the First Belarusian Bank to help stimulate growth of SMEs in Belarus. [5]
Most recently, FMO has supported the Microfinance Enhancement Facility (MEF), a USD 500 million fund founded by the International Finance Corporation (IFC) and Kreditanstalt fur Wiederaufbau Banking Group (KfW) to refinance loans to MFIs in light of the global financial and economic crisis. [6] [7]. Though there have been no specific figures reported yet on how much FMO has contributed to MEF, the company was one of 14 finance institutions to attend a meeting, in March 2009, to discuss how to help development finance institutions weather the shortage of funding during the recent global recession.
For a more detailed list of various FMO microfinance activities in the last two years, visit a recent MicroCapital.org story published in May 2009. [3]
By Radhika Chandrasekhar, Research Assistant
Bibliography
[1] FMO. http://www.fml.nl
[2] FMO. Annual Report 2008. http://www.fmo.nl/FMO/documents/AR/FMOAR08.pdf
[3] MICROCAPITAL STORY: European Development Finance Institutions Part 3: The Netherlands Development Finance Company (FMO) Invests Over USD 160 million in Microfinance in Last Two Years. https://www.microcapital.org/microcapital-story-european-development-finance-institutions-part-3-the-netherlands-development-finance-company-fmo-invests-over-usd-160-million-in-microfinance-in-last-two-years/
[4] The Currency Exchange Fund. http://www.tcxfund.com/
[5] MICROCAPITAL STORY: FMO opens USD 5m Credit Line to the Belarusian Bank for Small Business (BBSB) to develop BBSB’s Micro-Lending Program. https://www.microcapital.org/microcapital-story-fmo-opens-usd-5m-credit-line-to-the-belarusian-bank-for-small-business-bbsb-to-develop-bbsb%E2%80%99s-micro-lending-program/
[6] OeEB. 13.03.09 OeEB commits EUR 20 million to the “Microfinance Enhancement Facility.” http://www.oe-eb.at/en/osn/NewsCenter/Pages/investment-microfinance-enhancement-facility.aspx
[7] International Finance Corporation. Issue Brief: Microfinance Enhancement Facility: February 2009 http://www.ifc.org/ifcext/about.nsf/AttachmentsByTitle/IssueBrief_MEF/$FILE/IssueBrief_MEF.pdf
[8] MICROCAPITAL STORY: Microfinance Investor Netherlands Development Finance Company (FMO) to Establish $125m Fund to Support Small and Medium-sized Enterprises (SMEs) in India. https://www.microcapital.org/microcapital-story-microfinance-investor-netherlands-development-finance-company-fmo-to-establish-125m-fund-to-support-small-and-medium-sized-enterprises-smes-in-india/
[9] Bloomberg Calculator. http://www.bloomberg.com/invest/calculators/currency.html
[10] FMO. MASSIF Product Sheet. http://www.fmo.nl/FMO/documents/Brochures/MASSIF%20Productsheet.pdf
[11] FMO. FMO co-funded initiative enables growth of micro finance sector. http://www.fmo.nl/smartsite.dws?id=1742
[12] FMO. Additional funding for smaller microfinance institutions. http://www.fmo.nl/smartsite.dws?id=1867
[13] LeapFrog Investments. Press Release. LeapFrog Raises $44 Million for World’s First Microinsurance Fund http://www.leapfroginvest.com/ui_images/LeapFrog_press_release_June2009.pdf
[14] FMO. FMO participates in World’s First Microinsurance Fund. http://www.fmo.nl/smartsite.dws?ch=DEF&id=1713
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