MICROCAPITAL STORY: US President Barack Obama Announces $100m Microfinance Growth Fund for Latin America and the Caribbean at Fifth Summit of the Americas

US President Barack Obama opened the fifth Summit of the Americas in Trinidad and Tobago with a speech outlining his administration’s policy toward the Western Hemisphere. As part of his response to the global economic crisis, the President announced a newly-formed Microfinance Growth Fund to jump start lending to small businesses in the region.

In the face of the global credit crisis, microfinance institutions in Latin America and the Caribbean (LAC) are struggling to find sources of financing. This is occurring at a time when the demand for micro loans is rising as job loss escalates and the newly unemployed turn to small enterprises as a source of income. A recent report by the Multilateral Investment Fund (MIF) at the Inter-American Development Bank (IDB) estimated that 565 microfinance institutions (MFIs) are currently financing about nine million microenterprises in the region, with an outstanding loan portfolio of USD 9 billion. As both international and local financing contracts, the report finds that regional MFIs could confront a financing shortage of up to USD 750 million this year.

To address this shortage, the US administration has announced a new partnership between the MIF, an autonomous fund administered by the IDB, the U.S. Overseas Private Investment Corporation (OPIC), an independent US government agency which facilitates investment in developing countries, and the Inter-American Investment Corporation (IIC), an affiliate of the IDB which supports private sector and capital market development in LAC coutnries, to launch a Microfinance Growth Fund for the region. The USD 100 million fund will provide medium and long-term financing to MFIs and microfinance investment vehicles (MIVs) to help rebuild their capacity to lend. Out of the first closing, USD 20 million will be in equity and USD 80 million in debt.

The MIF will take a lead role in structuring the new fund, identifying managers and defining the lending strategy, and will seek statements of interest next month. The fund is designed as a public-private partnership, and the current partners are seeking additional investors, from both the public and private sector, to reach the ultimate goal of raising USD 250 million.

The creation of the new Microfinance Growth Fund is representative of the prominence of microfinance in the Obama administration’s agenda, as emphasized by US Secretary of State Hillary Clinton in her confirmation hearing earlier this year. More information on the US government’s microfinance programs, and background on the Obama administration’s focus on microfinance, can be found in this MicroCapital story. Barack Obama’s personal roots in microfinance are explored in this MicroCapital article.

The White House has emphasized that micro and small businesses provide the majority of jobs in the Western hemisphere, and consider support of microfinance institutions imperative to the region’s recovery from the current economic crisis.

By Jaclyn Berfond

Additional Resources:

Fifth Summit of the Americas: Homepage

Reuters: US unveils $100 mln microfinance fund for Americas

Miami Herald: White House Announces $100M for Microcredits

MicroCapital Story: US Secretary of State Designate Hilary Clinton Refers to Obama’s Mother, Ann Dunham; Implies Microfinance Would be an Important Part of her Agenda

MicroCapital Story: Barack Obama, Roots in Microfinance, Ties to USAID, Ford Foundation, Asian Development Bank, Bank Rakyat, Womens World Banking and Chicago’s Shorebank