13th Annual Workshop - 17 & 18 September International Development Funding for Housing Microfinance. Joachim Bald

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1 13th Annual Workshop - 17 & 18 September 2009 International Development Funding for Housing Microfinance Joachim Bald

2 International Funding Landscape for Microfinance Mixmarket.org Overview 2

3 International Funding Landscape for Microfinance Mixmarket.org Overview 3

4 International Funding Landscape for Microfinance 4

5 Socially Responsible Investment Funds Professional Microfinance Investment Fund Managers: BlueOrchard, Geneva ConCap Connective Capital (Frankfurt School) Cordiant Capital, Canada Cyrano Management sa, Lima, Peru IncoFin, Belgium MinLam, New York ResponsAbility, Zurich Symbiotics, Geneva Triple Jump, Amsterdam 5

6 Socially Responsible Investment Funds 6

7 International Development Finance Institutions International Finance Corporation Very commercial orientation, development impact is often an afterthought. IFC has taken a policy decision that Consumer Credit is good for economic growth, hence it must be good for low-income customers as well. This position recently has come under fire from other DFIs. Existing and past South African investments: Wizzit African Bank Eduloan Blue Financial Services SA Home Loans Cash Bank Internationally: e.g. Banco Compartamos (Mexico). ACCION / IFC/ other initial equity stakes of $6 million were worth $450 million at IPO in Feb

8 International Development Finance Institutions FMO Dutch Development Bank Recent FMO Investments in MSME Financial Services Real People Holdings Blue Financial Services Micro Provident, Botswana Jet Finance, Bulgaria K-Rep, Kenya DFCU Bank, Uganda XAC Bank, Mongolia 8

9 International Development Finance Institutions KfW German Development Bank DEG private sector unit invested in African Bank sub-debt and typically more open to commercially successful ventures with less stringent development impact criteria. Generally however, microfinance investments are managed directly by KfW Development Bank Frankfurt. KfW is a leader in the Responsible Finance debate among microfinance MSME finance investors: renewed programmatic focus on income-generating microenterprise finance. 9

10 Investments in South African Microfinance Blue Financial Services: Donor Darling? 10

11 Investments in South African Microfinance Blue Financial Services: Utterly Shameless? 11

12 Investments in South African Microfinance Blue Financial Services: Utterly Shameless? 12

13 Is Housing Microfinance Even Acceptable? Income generating micro-enterprise finance is central to poverty alleviation and the general welfare effects of access to finance. For true believers, this is the only microfinance worthy of development support. Some argue for broader financial inclusion, accepting consumer finance, savings instruments, micro-insurance and remittances as part of a holistic spectrum of low-income financial services. With the experience of the recent consumer credit boom & bust, the opinion has turned against ordinary consumer credit as a developmentally worthwhile financial service. Housing microfinance is in the middle and acceptable to many sponsors, at least as a component in a broad microfinance offering. Why Housing Microfinance: builds household wealth, stable families, pride and dignity, creates opportunities for home based business, a foot in the door in the upwardly mobile housing continuum. supports incremental building the only realistic way to own a home for the vast majority of low-income households. 13

14 Is Development Finance Funding Worth the Trouble? What does it cost? The really sweet deals come directly from Official Development Assistance: soft loans with generous accompanying technical assistance and grants. Don t even dream about it, unless you re pure Grameen style village banking. DFIs provide some technical assistance and grants but funding is at near market terms. Typically there is a strong preference for micro-enterprise finance programs. MF investment funds are the most commercial, with very limited development rebate on the funding. MF investment funds also have relatively low exposure limits: e.g. 10% of total assets or 100% of equity of a MFI. Typical investment fund pricing: large institution in top African market, e.g. Kenya: USD Libor +5% - 6% on $2 - $5 million senior debt. Subordinated debt costs an additional 1.5% 2.5% p.a. Central Asia, Eastern Europe: senior USD 3-year fixed: 7.5% - 8.5% 14

15 Impact of Global Crisis on Funding for Microfinance CGAP Survey results: Rationing of funding to MFIs: commercial banks are pulling back, CDOs are dead, limited fresh money going into dedicated microfinance funds, countercyclical DFIs can only fill some of the gaps. Cost of funds is going up: increases of 250 bps in Eastern Europe, 400 bps in some Latin American countries, 450 bps in South Asia (CGAP 2008). International banks were first to increase rates and ration credit, but effects are spilling over to local banks and their MFI funding via global credit markets. MFIs face large roll-overs in , over $2 billion in 2009 alone. Constrained funding will force slower portfolio growth in MFIs. Need to brace for second wave of real economy effects: Decline in remittances, export revenues, tourism, local consumer demand etc. Microfinance clients are resilient, but not immune to global recession. 15

16 Impact of Global Crisis on Funding for Microfinance February