KNOW A FUND: Microfinance Enhancement Facility, An Interview with Mark Berryman of the International Finance Corporation (IFC)

The Microfinance Enhancement Facility (MEF) is a microfinance investment vehicle that was established this year in response to the global credit crisis to refinance loans to well-established microfinance institutions (MFIs). MEF was founded by the International Finance Corporation (IFC) and KfW Entwicklungsbank. IFC, a member of the World Bank Group, made new investments totaling USD 16.2 billion in fiscal 2008. IFC’s microfinance investment activities reached nearly USD 1.3 billion in 2009 through over 160 projects in over 60 countries. Mark Berryman, of IFC’s Global Financial Markets Microfinance Group, recently spoke with MicroCapital:

MicroCapital: Please briefly describe the founding of MEF and its fundraising.

Mark Berryman: MEF held a signing and launch ceremony on February 5, 2009, at which the first USD 280 million was committed: USD 130 million by KfW and 150 million by IFC. Thereafter, the Austrian Development Bank invested USD 25 million, the German government invested USD 36 million and the European Investment Bank invested USD 50 million; so USD 391 million is now subscribed. The next two closings will take MEF to its target size of USD 500 million.

MC: What is the lending activity to MFIs?

MB: At the fund launch in February 2009, we held the first Investment Commitment meeting and approved the first set of loans to MFIs. On May 13, MEF disbursed its first loans totaling USD 30 million dollars to eight MFIs. The next disbursement will take place in coming weeks, and the volume will be USD 80 million.

MC: What has demand been like?

MB: The demand differs across regions. In October and November, the need was over USD 1 billion dollars of refinancing for MFIs. This is looking at a survey of approximately two
hundred top MFIs. These estimates were based on growth projections that have changed with the unfolding of the crisis over the last three to six months. MFIs in general have reduced their demand, and many are focusing on portfolio quality and at the same time beefing up risk management. These are generalized outcomes of the financial crisis and, again, it’s going to differ by country and institution.

MC: Please describe the product offered.

MB: MEF provides short-term senior loans (2 to 3 years) to MFIs pari passu with other notes outstanding at the MFI level. It offers both fixed and floating rates and will offer local currency going forward. The product offering may change as determined by the Board in accordance with changes in the financial markets.

MC: What is the pricing?

MB: The pricing of individual loans to MFIs is market based. MEF was set up to kick in where private funds are not available.

MC: Are all the MFIs that have received funding existing members of the three fund managers’ portfolios: Blue Orchard Finance, Cyrano Management and responsAbility?

MB: Not all MFIs will be existing clients of the fund managers. Any interested MFI is welcome.

MC: When do you anticipate full disbursement of the fund?

MB: Full disbursement will depend on demand. The funds will be lent to those who have the largest need for refinancing. MEF is not a bailout facility. It was built to support strong institutions experiencing funding gaps due to the crisis. Depending on the geography of the demand, the MEF will be able to supply refinancing on an as-needed basis. MEF investors agree that project should be a temporary solution, and when the crisis turns around the project will either evolve or it could get wound up by shareholders.

MC: What was the primary challenge faced in bringing the project together?

MB: There were many challenges, but everyone agreed it was important to move quickly because private funding was disappearing. We got it up and running in record time of less than two months.

MC: What would you say enabled that record time?

MB: The key factor was total support from IFC management and also our close collaboration with KfW.

MC: Do you have a long working relationship with KfW? Can you give examples of such partnerships?

MB: KfW is one of our closest partners in microfinance. This includes setting up greenfields in markets with little to no access to finance and working with network partners and microfinance investment vehicles.

MC: What else would you like the public to know about this project?

MB: The project is flexible to meet the needs of MFIs as they change with the evolving financial situation and financial sector. In our view, these types of vehicles should not crowd out the private sector. The facility was set up to help stabilize funding for systematically important MFIs and their clients.

JUST THE FACTS

  • Fund name: Microfinance Enhancement Facility
  • Date established: February 5. 2009
  • Portfolio: $30m, 8 microfinance institutions
  • Share classes: Euros, US dollars, local currencies
  • Net asset value: $391m as of October 2009
  • Target net asset value: $500m
  • Founders: International Finance Corporation and KfW Entwicklungsbank
  • Investors: International Finance Corporation, KfW Entwicklungsbank and the Austrian Development Bank
  • Managers: BlueOrchard Finance, Cyrano Management and responsAbility Social Investments
  • Fund Secretariat: InnPact S.ar.l.
  • Hedging advisor: Cygma Corp.
  • Custodian: Credit Suisse
  • Website: http://www.ifc.org/ifcext/about.nsf/ Content/FinancialCrisis_MEF
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