Washington, D.C, April 15, 2004—
The International Finance Corporation, the private sector arm of the World Bank Group, has helped create the Global Microfinance Facility Ltd, a new $30.1 million investment company. With initial funding of $15 million, it is beginning operations today.
The Facility has been developed by IFC, Kreditanstalt für Wiederaufbau (
KfW )
and Cyrano Management as a commercially viable approach to helping microfinance institutions (MFIs) access medium-term local currency funding from domestic or foreign banks. The Facility will provide credit enhancement products at commercial terms to MFIs through local commercial banks who would not otherwise lend to them. These products will include standby facilities (letters of credit, letters of guarantee, and direct funded loans or deposit products) to local commercial banks, primarily to support local currency lending to MFIs. The Facility will also make direct loans to MFIs for liquidity management.
The Facility’s first loss tranche is funded by a $2 million grant under the Netherlands IFC Partnership Program and $100,000 provided by Cyrano Management, which will manage the Facility. The Facility is structured so that there is a mezzanine tier and a senior tier. The Mezzanine B tranche is being funded by IFC and KfW ($4 million each), while the Senior A tranche will be funded by BIO of Belgium ($2 million) and Credit Cooperatif of France ($3 million). A further $15 million of the A tranche will be funded as part of a second and final closing.
“The investment fits in with IFC's strategy of supporting well-managed and financially sustainable microfinance institutions. We are providing them with a mechanism for obtaining local currency funding for on-lending to microenterprises in local currency,” said Jyrki Koskelo, IFC’s director for Global Financial Markets.
Currently, many microfinance institutions fund growth of their local currency loan portfolios through hard currency loans. This subjects them to foreign currency risk. The new Facility addresses this issue by alleviating the foreign exchange risk for microfinance institutions. This should result in a stronger sustainable microfinance industry in developing member countries.
“This project demonstrates how our donor partners help us in our work; in this Facility we are combining resources of different kinds—grants and commercial money—to fund an initiative that should have a direct, lasting impact on reducing poverty,” said Uday Wagle, IFC’s director for Trust Funds.
The mission of IFC (
www.ifc.org
) is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY03, IFC has committed more than $37 billion of its own funds and arranged $22 billion in syndications for 2,990 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY03 was $16.8 billion for its own account and $6.6 billion held for participants in loan syndications.
Based in Lima, Peru, Cyrano Management is an investment management firm. It specializes in managing funds that on-lend to microfinance institutions in Central and South America. Cyrano currently manages the Latin America Challenge Investment Fund, a debt fund with a $16 million portfolio as of December 31, 2003
