OPIC and the Global Microfinance Industry

16 November 2012
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As the U.S. Government’s Development Finance Institution, the Overseas Private Investment Corporation (OPIC) has a mandate to help channel private capital to address some of the world’s toughest development challenges. One of the core ways we carry out that mission is by working with microfinance institutions. In recent years, OPIC has tailored its financing and insurance products to better serve the microfinance sector.

Students at the Ongata Pine Breeze Academy outside Nairobi, Kenya.OPIC has provided financing or guaranties of more than $800 million across 25 different microfinance transactions, as well as insurance to microfinance fund managers covering 55 loans to MFIs.

Five of the key ways OPIC is working to expand the reach and impact of microfinance are described below.

Political Risk Insurance

OPIC’s Political Risk Insurance can cover small-scale political risks that that might seem minor to a larger corporation but could hurt a micro-borrower’s ability to repay a loan to a microfinance institution (MFI). Some of the risks that are covered by these products include the imposition of interest rate caps or other potential changes in a country’s laws or regulations, as well as potential closures of central markets, the blocking of a road, border or other trade route, and localized political violence.Because MFIs often borrow from larger lenders, these insurance products are designed to address risks associated with both the MFIs and their underlying microborrowers.As one example, OPIC is providing political risk insurance to MicroVest Capital Management LLC (MVCM), which invests in microfinance institutions throughout much of the developing world, and manages the Access Africa Fund to reduce poverty and promote financial inclusion in Sub-Saharan Africa.

Local Currency Financing

OPIC’s loan guaranty product enables microfinance institutions to access local currency financing without exposing them to cross border foreign exchange risk.  In a recent transaction in Indonesia, OPIC agreed to provide a $21.5 million guaranty to enable Bank Andara, a local microfinance lender, to obtain loan in the local Rupiah currency from Citibank, in order to expand its portfolio of loans to microfinance institutions in Indonesia. Similarly, OPIC has executed a $21.5 million commitment to extend a guaranty that will enable Tameer Microfinance Bank of Pakistan to obtain a Rupee loan from Citibank Pakistan so that Tameer can increase its micro loan portfolio and expand outreach in a big way.

The Bank Andara and Tameer Microfinance Bank transactions also illustrate how OPIC partners with financial institutions that use innovative technology and distribution channels to meet client needs. Bank Andara provides Indonesian MFIs with a transactional banking platform so they can make bill payments, access cash, and deposit savings through an ATM network. Tameer, with its majority owner, the mobile operator Telenor Group, launched a branchless banking brand called EasyPaisa. This use of technology helps Bank Andara and Tameer act as force multipliers for expanding the reach of financial products in Indonesia and Pakistan.

Value added services

In an effort to address many of the root causes of poverty, OPIC has provided financing to a number of projects that integrate credit products with other services. Global Partnerships, a Seattle-based nonprofit, pools capital from investors which can be used to make loans to MFIs and targets MFIs that provide micro entrepreneurs with additional services such as health services and assistance in generating rural livelihoods.OPIC has invested $18.4 million in three of Global Partnerships’ microfinance investment vehicles totaling $52.5 million.In one of its deals to provide a loan to ProMujer Nicaragua, which focuses on female entrepreneurs, Global Partnerships is also helping the institution develop and implement a sustainable health services business so that clients can receive cancer screenings and other health services as well as much needed credit products.

“Crowding in” private sector investors

OPIC has traditionally provided primarily senior debt to transactions in various sectors, including microfinance, helping MFIs leverage their equity and expand their lending activity.However, we are able to provide debt to borrowers in a tranche that is not the most senior as long as there is an adequate amount of capital more junior to OPIC’s position in the structure.OPIC will consider taking such junior positions if doing so will help to catalyze investment by private sector investors or if such debt is otherwise critical to achieving the capitalization required for a transaction.was seeking investors for a new facility that would help it to raise capital efficiently for its subsidiaries in Tanzania, Uganda, and Southern Sudan, and sought OPIC participation in both the senior and junior debt tranches of the structure.

Interested in learning more? Contact us for a quick response on whether OPIC may be able to structure a solution to address your MFI’s needs.

 

------ Richard Greenberg and Loren Rodwin are Managing Directors, Micro and SME Finance at OPIC. They can be reached at richard.greenberg@opic.gov & loren.rodwin@opic.gov

Photocredit: Timothy Harwood

 

Comments

Submitted by Loren Rodwin on
Thank you for your question. OPIC develops its products based on the needs we observe working to promote investment in the developing world. Both our political risk insurance for microfinance institutions and our local currency financing were developed to address some of the challenges that microfinance institutions were encountering. Although our products are typically developed in response to challenges we hear about on the ground, we would welcome learning about any existing research on the topic.

Submitted by Caroline Kirby on
Is the efficacy of political risk insurance, local currency financing and value-added services for understandingMFIs proven with sound research? If so, which studies?

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