Its main objectives are to: Create and enhance institutional capacity for sustainable microfinance delivery and Strengthen linkages with domestic and international capital markets.
To fill the current gap in appropriate financing mechanisms and link MFIs to the capital markets, MIFA will provide capital support: (i) leveraging existing investment vehicles to provide equity and long-term local currency debt financing through partial guarantees; (ii) managing foreign exchange risks through currency swaps and other mechanisms; (iii) developing new investment vehicles in markets with less access to capital markets; (iv) accessing bond markets through credit enhancements; (v) assisting individual institutions with debt and equity financing.
MIFA will focus on Central Asia, East Asia and the Pacific as well as South Asia (including Pakistan and Afghanistan) where IFC and KfW intend to jointly commit over US$950 million through debt, equity and structured finance projects over the next three to five years. MIFA will also leverage up to US$50 million in advisory services for Asian microfinance.
Given the large-scale, multi-year program and broad geographic spread of this initiative, we are testing new operational models to capture synergies from this strategic collaboration between IFC and KfW. These include: (a) hiring a dedicated technical team of external consultants to conduct market scoping and feasibility studies as well as develop subsequent project concepts; (b) jointlypreparing focused investment projects – the technical team is also expected to unearth project possibilities that IFC’s normal processes may not have identified; and (c) streamlining investment procedures between IFC/KfW and standardizing investment/advisory documents to leverage the capabilities of each institution and derive economies of scale.
Facility Concept: The Facility’s aim is to expand and accelerate access to a broad range of financial services for private households, micro entrepreneurs and small businesses throughout Asia with a special emphasis on rural finance. To achieve these objectives, the Facility will focus on:
- Leveraging existing investment vehicles to provide equity and long-term local currency debt financing through partial guarantees
- Managing foreign exchange risks through currency swaps and other local currency mechanisms
- Assisting individual institutions with debt and equity financing
- Developing new investment vehicles in markets with less access to capital markets
- Accessing bond markets through credit enhancements
Investment Services: will provide resources to: Banks for: (a) downscaling or (b) linking banks with microfinance institutions; and MFIs for: (a) up-scaling, (b) regional expansion; (c) consolidation; (d) mergers; (e) transformation to banks; (f) launching of new products; (g) developing new delivery channels employing innovative technology; (h) establishing greenfield institutions
The Facility approach will enable IFC to work with a large number of relatively small institutions, contributing to the development of the industry as a whole, in a cost-effective manner. The funds will be allocated to a broad variety of institutions with which have different characteristics and focuses in operating areas, products, clients and business sectors. Partner institutions will be selected based upon detailed market diagnostics and mapping of market players in each of the target countries, identifying existing constraints to the expansion of microfinance.
Advisory Services: An advisory services program will be implemented alongside the investment Facility. The objective of both the advisory project and the investment Facility is to expand access to microfinance on a massive scale through enhancing the sustainability of individual institutions and achieving systemic impact. To achieve these objectives, the advisory project will focus on:
- Upgrading microfinance operations through transforming MFIs into regulated entities; creating new regional network partners; linking MFIs with existing network partners; and fostering consolidation of smaller MFIs
- Downscaling private commercial bank operations into microfinance through dedicated departments or service companies
- Expanding delivery capacity by developing new distribution channels such as mobile phone providers
- Extending product offerings by linking MFIs with, wholesalers, agri-businesses; or introducing products such as micro-insurance, remittances etc
|
Collaboration between KfW Entwicklungsbank and IFC is expected to help sharpen the focus on developing investment opportunities and leverage the capabilities of both institutions to derive economies of scale. MIFA is also expected to have a catalytic impact on mobilizing private sector resources for Asian microfinance.
