The European Investment Bank (EIB) announced it is providing a EUR 2 million (USD 2.6 million) grant to support the AfriCap Microfinance Fund through FinTech Africa, to fund capacity building for early-stage and greenfield microfinance institutions across Africa. In addition to the EIB grant, the Bill & Melinda Gates Foundation will contribute a USD 5 million grant to FinTech Africa, the non-profit organization that manages AfriCap’s technical services facility, and the Dutch development agency, FMO, will provide a USD 0.75 million grant.
The combined funding is meant to encourage young microfinance institutions that are in need of grant finance to train staff, develop their financing strategy, and ensure efficient and correct management. The grants from the three donors will be used for separate areas of technical assistance activity. The funds from the EIB will be used for targeted capacity building, specifically risk management, product and strategy development, and effective use of technology. The USD 5 million from the Bill & Melinda Gates Foundation will contribute to strategic and technical support through investee capacity building and innovation grants. The USD 0.75 million from FMO will be dedicated to knowledge-sharing and network activities.
“The EIB’s main lending objectives in the ACP (Africa, Caribbean, and Pacific) regions are to reduce poverty and encourage economic growth, in line with the Millennium Development Goals. The Bank recognizes that microfinance is a cornerstone activity for achieving these objectives. We have worked with AfriCap in the past and are confident that they have the required structure and management to ensure that the technical assistance grants reach those microfinance organizations that can most benefit from them. Moreover, the EIB is delighted to work alongside organizations such as the Gates Foundation and FMO for the common goal of helping less favored communities to develop economically and improve their quality of life,” said Plutarchos Sakellaris, EIB Vice President responsible for lending activity in Africa.
In 2001 the EIB provided EUR 2 million (USD 2.6 million) in equity to the first AfriCap Fund. As reported in this MicroCapital story, the EIB provided another EUR 5 million (USD 6.6 million) in equity in 2007 to the AfriCap II Fund. EIB commitments for microfinance projects in ACP countries stand at EUR 90 million in debt and equity (USD 118 million). The Caribbean region has been the largest microfinance beneficiary to date, accounting for EUR 54 million (USD 71 million) or almost 60 percent of total microfinance commitments in ACP countries. Since 2005 the geographical focus of EIB microfinance operations has shifted to Africa where the EIB has participated in 8 microfinance operations to the value of EUR 27 million (USD 35 million).
AfriCap was first proposed in the late 1990s to be an equity investment fund for microfinance institutions (MFIs) in Africa. According to its website, AfriCap Microfinance Fund is a USD 50 million investment company investing solely in microfinance across Africa. So far the fund has made 14 investments across 12 countries. AfriCap’s investors include Blue Orchard Finance, the Calvert Foundation, Accion International and the International Finance Corporation (IFC). A 2007 USAID evaluation noted that AfriCap’s technical services facility has been an important tool for AfriCap, providing performance-enhancing technical assistance as well as support to AfriCap’s infrastructure, human resource capacity, and development. It has also allowed AfriCap to participate in and support sector events that proved important venues for promoting the Fund, sourcing deals, and engaging sector professionals. The evaluation concluded that AfriCap has influenced the commercialization of microfinance in Africa but it can have a much more powerful and broader impact through greater investment scale and a continued demonstration of profitability.
According to the Africa Microfinance Analysis and Benchmarking Report, 2008, summarized in this MicroCapital paper wrap-up, total microfinance borrowers in Africa grew 25 percent in 2007 to 4.7 million from 3.8 million representing a total loan portfolio of USD 2.2 billion. Microfinance savers grew 31 percent from 5.5 million to 7.2 million representing total assets of USD 1.8 billion. According to the report, microfinance in Africa continues to face many challenges with low penetration rates and high operational costs. With increasingly integrated financial systems, emphasis on savings mobilization, and the growth of start-up MFIs however, Africa is moving towards increased outreach and sustainability.
The Bill & Melinda Gates Foundation was founded in 1994 and supports work in more than 100 countries. As of October 2008 the foundation had 686 employees, an endowment of USD 35.1 billion and distributed USD 17.3 billion in grant commitments. Part of the Foundation’s Global Development Program, the Financial Services for the Poor, supports new products, technologies, and business models to deliver safe, affordable financial services to poor families in developing countries. The Program emphasizes savings accounts for poor families. Other grants and grantees in the program include USD 24 million to the Consultative Group to Assist the Poor (CGAP), USD 24.2 million to Development International Dejardins (DID), and USD 5 million to New York University’s Financial Access Initiative (FAI). For more information on the Financial Services to the Poor Program, click here.
According to the MIX Market, the microfinance information clearinghouse, FMO was established in 1970 as a Development Finance Institution to provide loans, participations, guarantees and other investment promotion activities. FMO’s goal is to contribute to the structural and sustainable economic growth in developing countries and emerging markets and, together with the private sector, obtain healthy returns. As of December 31, 2007 FMO had allocated USD 422 million to microfinance investments.
By Laura Anderson, Research Associate
Additional Resources:
European Investment Bank: Home, “EIB joins forces with international development organizations to provide technical assistance grants to African microfinance ventures”
European Investment Bank: Home
AfriCap Microfinance Fund: Home
Bill and Melinda Gates Foundation: Home, Financial Services to the Poor Fact Sheet
CGAP: Home
Development International Desjardins: Home
Financial Access Initiative: Home
The MIX Market: Home, FMO Profile, AfriCap Microfinance Fund Profile
MicroCapital Story: AfriCap Microfinance Fund Attracts Notable Investors Including Nordic MicroCap, Blue Orchard and Gray Ghost, Raises Capital to $50m
MicroCapital Paper Wrap-Up: Africa Microfinance Analysis and Benchmarking Report, 2008
“Africa Microfinance Analysis and Benchmarking Report, 2008,” by Jennifer Isern, Estelle Lahaye, and Audrey Linthorst, published by CGAP and MIX: December 2008.
USAID: Evaluation of AfriCap Microfinance Fund
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