IFC Targets Poorer Countries, Doubles Microfinance Support for Entrepreneurs in Developing Countries
Washington, D.C.,October 21, 2007
— IFC Executive Vice President and CEO Lars Thunell today affirmed that the Corporation's growth strategy is central to the World Bank Group's efforts to fight poverty.
IFC’s growth is a reflection of the role that the private sector plays as an effective engine for economic growth and job creation, particularly in the poorest countries.
In fiscal 2007, 37 percent of IFC’s investments were in IDA countries, and the Corporation has set a 50 percent goal for this fiscal year. IFC’s growth and financial success allowed it to contribute $1.75 billion to IDA over the next four years. IBRD contributed an equal amount.
“IFC’s growth allows us to be more effective where we are needed most, particularly in poorer countries and those affected by conflict. That is where we can add value and demonstrate development impact,” Thunell said at a press conference held during the World Bank Group's Annual Meetings. "We are working hard to serve our clients and allow them to build successful businesses that create opportunities for poor people.”
Highlighting IFC's work in providing microfinance to entrepreneurs in developing countries as a good example of our contribution to private sector development, Thunell announced that the Corporation will double its total commitments in the sector to reach $1.2 billion over the next three years. This will improve access to finance for entrepreneurs in developing countries, create jobs, and raise incomes. It will also make housing, health care, and education more affordable for their families. IFC’s support will allow its microfinance institution clients to provide $30 billion in business loans to over 25 million people, boosting lending in developing countries.
“IFC is focused on creating and supporting commercially viable microfinance institutions that can attract the private capital needed to grow and respond to demand,” said Thunell.
IFC is also working to expand access to finance for small and medium enterprises, which are critical for creating jobs. IFC works through banks and equity funds to increase the availability of finance to those businesses.
Most of the world’s poor still live in rural, agricultural areas. In its agribusiness investments IFC focuses on supply chains to create strong links between large businesses and local farmers.
About IFC
IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC's vision is that poor people have the opportunity to escape poverty and improve their lives. In FY07, IFC committed $8.2 billion and mobilized an additional $3.9 billion through loan participations and structured finance for 299 investments in 69 developing countries. IFC also provided advisory services in 97 countries. For more information, visit
www.ifc.org
.
Fact Sheet: IFC and Microfinance
IFC has directly financed more than 50 microfinance institutions worldwide. Last year alone, these institutions provided over $8 billion in loans to their clients. IFC's total investment portfolio in microfinance exceeds $600 million, with $196 million invested in the financial year ending June 30, 2007.
Recent IFC projects involve innovations. These include local currency lending to microfinance institutions, mobile phone banking in Africa and Asia, and supporting commercial banks in Africa and Latin America as they extend their operations to support the microfinance sector. IFC is also partnering with the World Bank on policy issues and with CGAP (the Consultative Group to Assist the Poor) on industry architecture.
IFC's microfinance strategy involves establishing new institutions and strengthening existing ones. It also includes transforming nongovernmental organizations into regulated microfinance institutions, encouraging commercial banks to engage in microfinance, attracting new capital for microfinance through pooled investment vehicles, and promoting the sector as a desirable asset class to investors in capital markets.
Examples
NGO Transformation in Cambodia:
ACLEDA Bank Plc has transformed itself from an NGO specializing in rural development into a first-tier commercial bank that serves 181,000 Cambodians. Initially, IFC Advisory Services helped ACLEDA transition to a fully licensed financial institution. Since then IFC has loaned the bank $9 million for on-lending to micro, small, and medium enterprises and has invested $3.6 million in equity.
Today, ACLEDA is one of Cambodia's largest banks. IFC's support also allowed ACLEDA to finance smaller tier II microfinance institutions that target rural areas, hence extending the bank’s reach. IFC will support ACLEDA's cross-border expansion.
Collective Investment Vehicles:
The Global Microfinance Facility was launched as a tranched vehicle in 2004, with an initial portfolio of $30 million for 16 microfinance institutions worldwide. Building on its solid track record, the facility will reach $165 million by late 2007. It will be backed by commercial investors as well as Citigroup, the equity partner that will underwrite the placement of senior notes (rated by Fitch) to institutional investors. This facility will provide financing to 38 microfinance institutions.
Structured Finance: Compartamos
- In 2004 and 2005, IFC-guaranteed bonds allowed Compartamos to raise peso-denominated long-term funds from the local capital market. IFC's involvement enhanced the credit risk rating of the bonds from A to AA (local scale), allowing institutional investors to acquire the securities. The access to a new market under better conditions allowed the bank to continue growing. Compartamos is now a publicly traded commercial bank with 700,000 clients in the poorest rural and semi-rural regions of Mexico. IFC holds a 7.9 percent share of the capital.
Network Partners:
The ProCredit Group, in which IFC holds a 9.5 percent share, expects to be established in 25 countries by the end of 2009. Since 1995, IFC has arranged over 40 projects and committed more than $150 million in both equity and loans to the holding company and most of its regional partner banks. As of June 2007, the holding had a combined loan portfolio that exceeded $2.5 billion, reaching over 830,000 clients and almost an equal amount in deposits. In a bid to replicate this success, IFC was instrumental in working with other network players to create four new holding companies.
Rural Poor:
BRAC is one of the largest microfinance institutions in Bangladesh. Through its microfinance and development programs, particularly in health and education, it serves all of the country's 64 districts. As of December 31, 2006, BRAC had made about $350 million in loans to 4.55 million borrowers, and its member savings totaled $155 million. IFC is finalizing a partial credit guarantee of $18 million to back a local currency loan provided by Citibank Dhaka.
Pro-Poor Orientation:
Although it is a challenge to target very poor people using a commercial approach, five IFC partner microfinance institutions have won competitive grants in CGAP's
Pro-Poor Innovation Challenge
. IFC has started partnering with organizations such as BRAC and ASA (institutions that each reach over 4 million poor women), and has initiated a special fund, the Rural Impulse Fund, that targets solely rural microfinance institutions with debt and equity offerings.
