MICROCAPITAL STORY: International Finance Corporation (IFC) Invests over $514m in Micro Small and Medium Enterprise (MSME) Initiatives During 2008

The International Finance Corporation (IFC), a member of the World Bank Group, provides investment and advisory services to developing countries. Created in 1956, the IFC seeks to foster sustainable economic growth by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. Within its Global Financial Markets sector, the IFC supports microfinance in order to promote successful and sustainable economies in low and middle income countries. The IFC provides direct and indirect investment and advisory services to the microfinance sector. Its focus is on creating and supporting commercially viable microfinance institutions (MFIs) that can attract private capital thereby responding to unmet demand for micro loans. Furthermore it seeks to demonstrate the business case for commercial microfinance and also promote it as an asset class to private institutional investors. During 2008 the IFC invested USD 513.8 million in micro small and medium enterprise (MSME) initiatives and provided USD 840,000 worth of advisory services. Following is detailed information about IFCs activities in the microfinance arena.

The IFC together with Citi, a global financial institution, supported the Bangladesh Rural Advancement Committee (BRAC) with a local currency facility to expand lending to micro, small and medium enterprise (SME) customers in February 2008. The IFC USD 18 million facility was made available in Bangladeshi taka, its first investment in BRAC. Through this loan BRAC will reduce its dependence on grants and expand further to women borrowers. Within the microfinance sector the IFC’s strategy in Bangladesh is to promote SME development through its regional SME Facility, the South Asia Enterprise Development Facility (SEDF) which provides technical assistance to financial intermediaries, SMEs and the professional service firms that support SMEs.

A Vietnamese Dong (VND) loan of 320 billion (approximately USD 20 million) from the IFC to Technological and Commercial Joint Stock Bank (Techcombank) in April 2008 is aimed at helping SMEs gain better access to finance. Techcombank serves over 20,000 SMEs which accounts for 65 percent of its loan portfolio, and with this loan will further fund and support activities for SMEs. IFC’s strategic priorities in Vietnam focus on developing the financial sector, strengthening the investment climate, and supporting small and medium sized enterprises.

The IFC and Export Development Canada (EDC) signed an agreement in April 2007 for USD 40 million and USD 25 million, respectively, to expand the Papua New Guinea mobile phone network. One of the goals of this funding is to generating significant employment and support to local small and medium enterprises working with Digicel, a mobile phone operator in the Pacific region.

One of the key strategic priorities of the IFC in the LAC region is increasing access to finance, with an emphasis on microfinance and SMEs. Through the IFC’s LAC Regional Micro Small and Medium Enterprises (MSME) Finance Program, it is working with financial institutions to service micro, small and medium sized enterprises. This is achieved by providing both investments and advisory services and support to the development of microfinance institutions.

Banco Ficohsa of Honduras received an investment of up to USD 20 million in debt and over USD 400,000 in advisory services to expand lending to SME’s and streamline its operations. The funds will also be used for housing finance operations, including mortgages and home improvement loans.

A new MFI, Banco Popular Covelo (Bancovelo), was created in Honduras with the assistance of an investment of up to USD 2 million in new capital by the IFC. USD 440,000 in advisory services was also provided to help the bank streamline services and expand lending to low-income entrepreneurs. Bancovelo served 24,000 borrowers at the end of 2007 and expects to triple this within the next five years.

Centro Financiero BHD, a financial services holding company, of the Dominican Republic received an investment of USD 33 million from the IFC for a 9 percent equity stake in April 2008. Centro seeks to make available integrated financial products, including loans for SMEs, microfinance, remittances, and insurance, in order to improve the economy through job creation

The IFC reported in November 2008 that it would provide up to 4,000 million Colombian pesos (USD 2.1 million equivalent) to Colombia’s Corporacion Mundial de la Mujer de Medellin (WWB Medellin). WWB Medellin is a local MFI which reaches over 80,000 clients. This loan will support expansion of the MFI to 2,000 new clients and increase access to financial services for microentrepreneurs.

Brazil’s Banco Sofisa S.A signed an agreement with the IFC in January 2008 to receive USD 185 million. This will consist of a seven-year USD 30 million equivalent real-indexed note and a USD 155 million syndicated loan. The syndicated loan will be made by the IFC, Banco Itaú Europa/Itaú BBA and syndicated to 18 international banks. The investment is aimed at reaching SMEs in less developed areas of Brazil.

The IFC plans to support loans to more than 400,000 small entrepreneurs in Africa’s poorest regions in the next five years. Current programs in Sub-Saharan Africa include provision of business advisory services, capacity building and training to SMEs to foster entrepreneurship development and strengthen SME competitiveness.

The IFC announced in May 2008 that it would invest USD 45 million in credit-linked notes to be issued by MILAA (Microfinance Institutional Loans for Asia and Africa). The MILAA is a special purpose vehicle set up by Standard Chartered Bank to facilitate microfinance lending. This deal is part of the USD 500 million committed by the Standard Charter bank to a microfinance facility under the 2006 Clinton Global Initiative. The notes are linked to loans made to MFIs in Sub-Saharan Africa and South Asia. It is anticipated that the bank will be able to extend its reach to unbanked individuals. Lars Thunell, IFC Executive Vice President and CEO, commented that with this investment the IFC is “… building an asset class for investors who are looking for more microfinance opportunities in emerging markets.”

Advans Banque Congo, a new MFI in the Democratic Republic of Congo was launched with the help of an equity investment by the IFC in June 2008. The IFC will make an equity investment of up to USD 1.1 million, followed by a loan of up to USD 2 million. The goal is to reach entrepreneurs in the DRC affected by the recent conflict. Advans Banque Congo will be established in partnership with German development bank KfW Entwicklungsbank.

It was announced in March 2008 that IFC will make an investment of up to EUR 11 million (USD 15.6 million) in AlterMed, a private equity fund, to support the growth of small and medium enterprises in North Africa. The investment is aimed at enhancing the competitiveness of small and medium enterprises by making equity and other value-added services more available, and supporting the transfer of strategic and operational skills to local entrepreneurs.

The Credit Bank of Moscow, a private Russian Bank, will receive a trade finance guarantee facility of up to USD 40 million from the IFC; it was announced in March 2008. This will be used to facilitate import-export transactions for SMEs. The guarantee provides coverage of bank risk in emerging markets, allowing Credit Bank of Moscow to expand their trade finance transactions and enhance their trade finance coverage.

The JSC Bank Caspian in Kazakhstan received an USD 80 million investment from the IFC in April 2008 to support the bank’s lending to SMEs. In Kazakhstan SMEs are vital for sustainable development and job creation, but currently lack access to credit.

Aureos Central Asia Fund, a private equity fund, received an investment of up to USD 10 million from the IFC for financing small and medium enterprises in Central Asia and the Caucasus. The investment in March 2008 will assist SMEs in Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Currently SMEs have limited access to capital in these markets.

Over the next three years the IFC will target the microfinance sector specifically to assist private enterprises with the global financial crisis. Their Microfinance Enhancement Facility (MEF) has been launched in conjunction with the German development bank KfW. The facility of up to USD 500 million will be funded by initial contributions of USD 150 million from IFC and USD 130 million from KfW. The MEF is expected to reach 100 MFIs by refinancing loans and support up to 60 million low-income borrowers.

KfW is a development bank that finances investments on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). KfW supports microfinance through its Financial Sector program activities, promoting over 100 microfinance projects in 60 developing or transition countries. As at the end of 2007, KfW had a project portfolio of approximately EUR 800 million (USD 1.1 billion). The Bank estimated that they had provided access to microfinance services for more than 13 million people. A recent MicroCapital stories details its recent microfinance investments of at least USD 250 million in microfinance services around the world between January 2007 and April 2009.

By Sally Levy, Research Assistant

Additional Resources:

IFC Press Releases:

IFC and Citi to Support Expansion of BRAC’s Microlending in Bangladesh

IFC Investment to Expand Access to Housing and SME Finance in Honduras

IFC Equity financing Supports Small Medium Enterprises in North Africa

IFC Expands Cooperation with Credit Bank of Moscow to Facilitate Foreign Trade for SMEs in Russia

IFC Loan Supports Small and Medium Businesses in Kazakhstan

IFC and Techcombank Help Vietnam’s Small Businesses Gain Better Access to Finance

IFC, EDC, and Digicel Collaborate to Expand Mobile Phone Network in Papua New Guinea

IFC Investment to Boost Access to Finance in the Dominican Republic

IFC and Standard Chartered Bank Collaborate on the Launch of Innovative Credit-Linked Notes to Improve Financing for Microfinance Sector