In a deal announced earlier this month and finalized last week the International Finance Corporation (IFC), a member of the World Bank group, has teamed up with Citigroup to loan USD 22 million to the microlending efforts of the Bangladeshi-based organization BRAC, formerly known as the Bangladeshi Rural Action Committee. The trenche is part of a larger financing plan of USD 55 million, of which USD 42 million will be provided by Citi. Citi Bangladesh and BRAC have worked together in the past several years to provide innovative microcredit solutions for Bangladesh, most recently in the first-ever implementation of a backstop facility for a microbank, which allows BRAC to lean on Citi in unfavorable market conditions rather than default on creditors.
The present deal marks the first time IFC has invested in BRAC; IFC will provide a partial credit guarantee for USD 18 million of the total amount, thereby allowing Citi to provide long-term financing to BRAC in local currency (68.6 Bangladeshi). IFC often provides local currency partial credit guarantees in cases where projects rely on local currency revenues, but have little access to financing in that currency. This credit mechanism capitalizes on IFC’s triple A credit rating to ensure a loan to a predetermined amount in the case of repayment default, helping BRAC enhance its credit record, attract more investors, and diversify its own interests with IFC involvement.
Founded in 1956, United States-based IFC invests in microlending projects worldwide, providing financial support as well as advisory services. According to their MIX Market profile, in 2007, IFC made 299 investments in 69 of the world’s developing countries, committing USD 8.2 billion plus an additional USD 3.9 billion through syndications. The South Asian region represents two-percent of these investments.
BRAC was founded in 1972 by Fazle Hasan Abed and is one of the largest non-governmental organizations in the world. The organization is 75 percent self-sufficient, earning revenue through the microbank, a food and dairy project, and a chain of handicraft stores, called “Aarong.” BRAC’s efforts are focused on helping women: of their 91,672 employees, 61 percent are women, and of their 4,550,855 borrowers, 96.4 percent are women.
As one of 1,200 NGOs to provide microcredit services, BRAC ranks among the most comprehensive, with 3,090 branches and 182,497 village organizations in all 64 districts in Bangladesh. In 2006 reports to the MIX Market, a microfinance clearing house, BRAC showed total assets of USD 394 million, with a gross loan portfolio of USD 350 million, or 89 percent. It reported a return on assets of 6.9 percent and a return on equity of 23.27-percent, with an operational self-sufficiency of 136.88 percent. More information about BRAC and its key players can be found in this December “Who’s Who” article from MicroCaptial.org.
By Priya Rajdev
Additional Resources:
International Finance Corporation: About IFC, Previously
BRAC: About BRAC, Previously
More about IFC Structured Finance: Structured Finance Overview
IFC News: “IFC and Citi to Support Expansion of BRAC’s Microlending in Bangladesh”
Citi: About Citigroup
The World Bank: World Bank Home
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