MICROCAPITAL STORY: European Development Finance Institutions Part 2: KfW Entwicklungsbank Remains One of the Largest Global Investors in Microfinance

KfW Entwicklungsbank (KfW), a development bank that finances investments on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), has made significant contributions to the microfinance sector in recent years. Between January 2007 and April 2009, KfW has invested at least USD 250 million in microfinance services around the world, with its outstanding commitments to the sector likely making that number even higher.

KfW Entwicklungsbank supports microfinance through its Financial Sector program activities, promoting over 100 microfinance projects in 60 developing or transition countries. As of the end of 2007, KfW had a project portfolio of approximately EUR 800 million (USD 1.1 billion). The Bank estimated that they had ensured access to microfinance services for more than 13 million people.

This article gives an overview of KfW’s involvement in the microfinance sector over the past two years. As KfW does not publicly release a list of their microfinance investments, this review is based on secondary sources and may not be comprehensive. Even taking this into consideration, the assessment finds that KfW has invested over USD 250 million in microfinance since January 2007, not including the substantial commitments described below that could not be quantified.

Much of KfW’s work in the microfinance sector has been done in partnership with the International Finance Corporation (IFC), the private sector arm of the World Bank Group. In April 2007, KfW signed a Memorandum of Understanding with the IFC to create the Microfinance Initiative for Asia (MIFA). The two organizations jointly committed up to EUR 800 million (USD 1.1 billion) through debt and equity investments, structured finance, and advisory services to support MFIs in Asia over the following three years. While the exact amount of funding KfW has contributed to the initiative is not specified, the vehicle represents a significant investment in the microfinance sector. Notably, the MIFA commitment has not been included in the total contributions of USD 250 million, and likely makes KfW’s total investments in microfinance much higher. Read more about the MIFA in this MicroCapital story.

KfW and the IFC also collaborated to set up a new MFI in Yemen with total capital of EUR 5 million (USD 6.7 million), and jointly established Advans Banque Congo as part of a 2006 agreement to mobilize USD 100 million to establish seven MFIs across Sub-Saharan Africa.

In the beginning of 2007, KfW initiated a microfinance program in Ghana that included a Wholesale Microfinance Facility and the establishment of two new microfinance institutions (MFIs) for a total of EUR 10.9 million (USD 14.6 million). KfW also began a program in the Democratic Republic of Congo, making a EUR 2 million (USD 2.7 million) equity investment in ProCredit Bank Congo, providing a loan and technical assistance of EUR 2.5 million (USD 3.4 million) to FINCA-DRC, and establishing a EUR 6.5 million (USD 8.7 million) fund to support smaller Congolese MFIs.

The Bank extended an additional EUR 1.28 million (USD 1.7 million) loan to ProCredit Moldova, following an initial loan of EUR 2.3 million (USD 3.1 million) which was extended in 2003. KfW also invested a total of EUR 9.4 million (USD 12.6 million) to ProCredit Bulgaria, including a EUR 4 million (USD 5.4 million) loan agreement, a grant of EUR 5.1 million (USD 6.8 million), and EUR 290,000 (USD 390,000) in subsidies. More information on the ProCredit Bulgaria investment can be found in this MicroCapital article.

In September 2007, KfW invested EUR 20 million (USD 26.8 million) in Deutsche Bank’s db Microfinance-Invest Nr. 1, a securitization of subordinated microcredits. The loans went toward 21 MFIs in 15 countries. KfW also invested approximately USD 1.3 million, for an 18 percent stake in MicroCred Nanchong, a pilot MFI in Sichuan Province China and loaned EUR 10 million (USD 13.4 million) to the Fondation pour le Developpement Local et le Partenariat (FONDEP), a Morocco-based NGO.

KfW, on behalf of the German government, also gave EUR 2.3 million (USD 3.1 million) in seed capital to establish the first formal MFI in Namibia, Koshi Yomuti. Read more about this KfW investment in a MicroCapital story.

In November 2008, KfW extended USD 5.1 million to the Afghan Ministry of Finance, to be lent to the First Microfinance Bank (FMFB) as a 15-year credit facility in local currency. Read more in this MicroCapital story. In December, the Association of Cambodian Local Economic Development Agencies (ACLEDA Bank), a Cambodia-based MFI, received a USD 850,000 grant from KfW to build a new microfinance training center in Cambodia.

Over the past two years, KfW has also had an active partnership with Access Bank, formerly the Microfinance Bank of Azerbaijan (MFBA), in which it has a 20 percent stake. In early 2008, KfW loaned the bank USD 22 million. In April, MFBA increased its share capital by AZN 9 million (USD 11.1 million). In order to maintain its 20 percent share in MFBA, KfW contributed an additional USD 2.2 million.

In early 2009, KfW and IFC launched the Microfinance Enhancement Facility, a cross-border refinancing facility for MFIs facing challenges following the global financial crisis. The facility has a target size of USD 500 million, with an initial contribution of USD 130 million from KfW in the form of a promotional loan.

In the past month KfW invested in new areas of microfinance, offering a grant of Rs. 2.2 Crore (USD 440,000) to Invest India Micro Pension Services (IIMP) for technical support in a new micro pension scheme with UTI Asset Management, an Indian mutual fund, and BASIX, a Hyderabad-based MFI.

In total, KfW has invested over USD 250 million in the microfinance sector since 2007. The bank plans to disburse an additional EUR 1.3 billion (USD 1.7 billion) through 2011 to help provide loans and financial services to some 17 million disadvantaged people.

For a look at the microfinance investments of another leading European Development Finance Institution, the European Bank for Reconstruction and Development (EBRD), read Part 1 of this MicroCapital series.

By Jaclyn Berfond, Research Assistant

List of KfW Microfinance Activities:

KfW Ghana Microfinance Program: USD 14.6 million
KfW DRC Microfinance Program: UDS 14.8 million
ProCredit Moldova: USD 1.7 million
Procredit Bulgaria: USD 12.6 million
db Microfinance-Invest Nr. 1: USD 26.8 million
MicroCred Nanchong, China: USD 1.3 million
Fondation pour le Developpement Local et le Partenariat, Morocco: USD 13.4 million
Koshi Yomuti, Namibia: USD 3.1 million
First Microfinance Bank, Afghanistan: USD 5.1 million
Association of Cambodian Local Economic Development Agencies: USD 850,000
Yemen MFI: USD 3.35 million
Invest India Micro Pension Services: USD 440,000
Access Bank: USD 24.2 million
Microfinance Enhancement Facility: USD 130 million
Microfinance Initiative for Asia