NEWS WIRE: Norway: $117m Norwegian Microfinance Initiative Established by Government, Financier Ferd, Bank DnB NOR and Insurers Storebrand and KLP

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OSLO, June 2 – The Norwegian government, companies and a private investor have formed a USD 117 million microcredit fund aiming to help people in poor countries out of poverty, although critics have said its interest rates will be too high.

It will be one of the world’s biggest funds in the field of microfinance which involves lending small sums of cash to poor entrepreneurs who would otherwise not have access to traditional banking or credit facilities.

Privately owned financial group and initiator Ferd has joined with banking group DnB NOR, insurance company Storebrand, life insurer KLP and the government to set up the 600 million Norwegian crowns (USD 117.1 million) fund.

The state will contribute 50 percent of the fund, and the other partners the rest, the foreign ministry said.

Dubbed the Norwegian Microfinance Initiative (NMI), the fund will help to provide small loans without collateral to poor people in developing countries, Development Aid Minister Erik Solheim said in a statement on Monday.

It will invest in microfinance institutions by providing capital, loans or guaranties, Ferd said.

“Microfinancing has shown that it actually works, it helps poor people to help themselves,” Johan Andresen, initiator, owner and chief executive of Ferd told Reuters.

Microcredit has been around for decades, but has mushroomed in recent years and shot into the headlines when Bangladeshi economist Mohammad Yunus and his Grameen Bank won the 2006 Nobel Peace Prize for their work to end poverty with microlending.

“Ferd has the opportunity, skilled people and capital to contribute to establishing a system making loans available for the poor,” Andresen said.

The fund’s plan to charge 30 percent interest on micro loans was criticised as exorbitant by some commentators, but the ministry defended it.

“Thirty percent interest is normal for microcredit because the loans are very small, and small loans are more expensive to administer than larger loans,” the ministry’s spokeswoman Ragnhild Simenstad told Reuters.

Andresen said the fund expected a return of 6-10 percent when the risk is high, and money market rates when it was lower.

Simenstad said the risk was high when customers cannot provide any security for payment, and that the rate was significantly lower than what local lenders could offer them.

“What we want, is to help, to make the world a better place, without simply giving it to (the poor),” Simenstad said.

“NMI will do something few others do, and that is to give loans in local currency which significantly reduces currency and inflation risk for the borrower,” Andresen told Reuters.

The fund will be managed by newly established NMI A/S.

By Aasa Christine Stoltz, Reuters

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