MICROCAPITAL.ORG STORY: U.S. Senators Introduce Microfinance Growth Fund (MGF) in Latin America and Caribbean, Backed by Overseas Private Investment Corporation (OPIC), Multilateral Investment Fund (MIF), and Inter-American Investment Corporation (IIC)

United States Senator Bob Menendez of the state of New Jersey, U.S. recently announced plans to invest in the Latin American and Caribbean (LAC) microfinance sector. The U.S. administration will launch a Microfinance Growth Fund (MGF) with the following organizations: the Overseas Private Investment Corporation (OPIC), an independent U.S. government agency which assists with investments in developing countries; the Multilateral Investment Fund (MIF), an autonomous fund administered by the Inter-American Development Bank (IDB); and the Inter-American Investment Corporation (IIC), an affiliate of the IDB which supports private sector and capital market development in LAC countries.

The MGF will provide medium and long-term financing to microfinance institutions (MFIs) and micro-investment vehicles to help rebuild their capacity to lend. While several details have yet to be disclosed, it is clear that the MIF will take a lead role in structuring the new fund. The fund is designed as a public-private partnership, and current partners are seeking additional investors, from both the public and private sector, to reach the ultimate goal of raising USD 250 million.

Mr. Menendez’s plan was introduced in association with Mel Martinez of the state of Florida, U.S. and Christopher Dodd of the state of Connecticut, U.S. under the Social Investment and Economic Development for the Americas Act of 2010. USD 1.3 billion will go towards microfinance, public-private partnerships, and capacity building for trade promotion in LAC. The portion of investment that will go towards microfinance has not been disclosed. Mr. Menendez’s goal is to support MFIs with sustainable, medium-term and long-term sources of finance [1]. According to a report by the U.S. embassy in Uruguay, funding like this may be very helpful, particularly in light of the financial crisis. “As domestic and external debt financing contracts, regional MFIs could confront a financing shortage of up to US $750 million this year” [2].

A survey was conducted in December 2007 by the Consultative Group to Assist the Poor (CGAP), an independent policy and research center established to improve financial access to the world’s poor. The survey indicates five organizations as the top funders for MFIs in the LAC. With the exception of one organization, which is a private investor, these funders are development financial institutions (DFIs). DFIs are organizations established with government support. Together, these organizations account for 67% of funding [3]. According to the CGAP survey, debt is the main funding instrument for MFIs, followed by grants, then equity, then guarantees.

The public sector, including governments, makes up 75% of all foreign capital investment for microfinance [4]. The U.S. Government has invested over USD 2 billion in microenterprise development up to the year 2004. This includes a total investment of USD 636 million in microfinance [5]. USAID works on behalf of the U.S. government with lending institutions to make loans, advocate policy reforms on behalf of MFIs, and help business owners gain access to entrepreneurial growth services [6]. For MicroCapital coverage on U.S. President Barack Obama’s new plans regarding microfinance in the Western Hemisphere, please visit: https://www.microcapital.org/microcapital-story-us-president-barack-obama-announces-100m-microfinance-growth-fund-for-latin-america-and-the-caribbean-at-fifth-summit-of-the-americas/.

According to the MIX Market, the microfinance information clearinghouse, microfinance in LAC has grown quickly with help from investors and depositors. The region’s MFIs grew by 30.9 % in scale (measured in local currency terms to remove the effects of the depreciating dollar) and 22.2 percent in outreach to end 2007 managing USD 13.7 billion in over 12.4 million loans to low-income clients in 15 countries across the region and across all credit types. Micro-savings increased by 28.1% (in local currency terms) to more than USD 8.6 billion in approximately 9.8 million accounts [7]. USAID is a U.S. agency which was established in 1961 to provide foreign assistance to “countries recovering from disaster, trying to escape poverty, and engaging in democratic reforms.” USAID’s involvement in microfinance includes financial and technical assistance, policy reforms, and initiatives linking small enterprises and poor producers into higher-value markets [8].

By: Diya Chopra, Research Assistant

Bibliography:

[1] Microfinance Focus

http://www.microfinancefocus.com/news/?p=599

[2] Uruguay US Embassy

http://uruguay.usembassy.gov/usaweb/2009/09-144EN.shtml

[3] Consultative Group to Assist the Poor (CGAP)

http://www.cgap.org/gm/document-1.9.7448/2008%20Funder%20Survey-resource%20presentation%20final.pdf

[4] Microfinance Gateway

http://www.microfinancegateway.org/p/site/m/template.rc/1.9.29006/

[5] MicroCapital

https://www.microcapital.org/microcapital-story-us-secretary-of-state-designate-hilary-clinton-refers-to-obamas-mother-ann-dunham-implies-microfinance-would-be-an-important-part-of-her-agenda/