MICROCAPITAL STORY: International Finance Corporation (IFC) to Assist Four Microfinance Institutions (MFIs) in Central Asia to Accept Deposits

The International Finance Corporation (IFC), the private sector lending arm of the World Bank, is assisting four microfinance institutions (MFIs) in Central Asia to transform into banks or deposit-taking organizations [1], according to a press release issued by the IFC [1]. The IFC initiative, billed as the ‘Azerbaijan and Central Asia Microfinance Transformation Support Project’, is expected to help the four MFIs become more sustainable, expand their range of services and also help boost access in underserved communities in the region [1]. The MFIs benefiting from the Project are IMON International and Arvand in Tajikistan, Bai Tushum in Kyrgystan and Credagro in Azerbaijan. Aside of the implementation of microfinance best practices and transformation plans, IFC’s support also includes advisory services package in institution-building, developing a corporate strategy, and mentoring of senior management.

‘Explosive growth over the past few years’ of the aforementioned MFIs has been cited as the factor necessitating the need for the IFC transformation project. As per the IFC release, there is a need for the ‘intensive growth’ of these MFIs to be complemented with ‘improved financial management, risk management, internal audit and control, and investor relations’. In the words of the IFC Senior Operations Officer for Investment

Climate Advisory Services in Europe and Central Asia, Mr. Rolf Behrndt: ‘The well-managed growth of these microfinance institutions will allow them to expand greatly the access to finance for underserved communities, especially in rural areas, and thus raise standards of living and improve lives’.

Centered in Almaty and supported with funds from the Ministry of Economic Affairs of the Netherlands and the IFC, the Microfinance Transformation Support Project has been in effect since 2008 in the Azerbaijan, Tajikistan, Kyrgyz and Kazakhstan regions [2]. As per information on the IFC website, the Project focuses on and assists those institutions that wish to transform their activities from being traditionally credit based to being able to provide their customers with a broader range of financial services, including the acceptance of deposits [2]. According to Mr. Behrndt, the initiative is a ‘part of IFC’s global strategy to support commercial viability of microlending organizations’ [1]. Per information available, IFC targets ‘top MFIs with good management, an established business, and which do not require significant intensive levels of support for their existing operations’. The IFC requires participating organizations to typically meet the following three criteria – a willingness to transform; a willingness to contribute fees for advisory services and currently a client for IFC investments or the potential to become one. Presumably, all four MFIs in discussion are IFC investment clients.

The IFC’s investments in IMON include a USD 2.5 million debt facility in May 2008 to develop IMON’s funding base and also to provide support in anticipation of its transformation plans. As of June 2009, the transformation project had provided corporate advisory services to IMON and had also facilitated investor negotiations to help IMON to change its status from a non-profit to a for-profit limited liability company [2]. In the case of Bai Tushum, in addition to a USD 1.2 million loan in 2005, the IFC had also provided a USD 4 million loan in 2009 to finance micro and small entrepreneurs in urban and rural Kyrgyzstan through individual and group lending products. The transformation project is aiding Bai Tushum to start taking deposits and has reportedly provided the management board with corporate and strategic advisory services on its equity raising efforts [2]. MicroCapital has extensively covered IFC’s past investments with Bai Tushum; for complete details, please refer to this April 2009 MicroCapital story [3].Credagro is also an IFC investment client, with a USD 6.0 million loan and a USD 4.0 million subordinated convertible loan in 2008 to finance micro, small, and medium enterprises throughout Azerbaijan. The transformation project has also reportedly provided the Credagro senior management with assistance in specifying and implementing its credit risk management unit, as well as in investor relations and negotiations [2]. No information on IFC’s investments in the Tajikistan MFI Arvand is currently available in the public domain.

IMON is an MFI based in Tajikistan offering micro-loans, leasing, training and consulting services. Established in 1999 as the National Association of Business Women of Tajikistan (NABWT), in partnership with Mercy Corps International, a US-based international refugee organization, IMON targets small and medium enterprises in an effort to promote economic development and poverty alleviation in the region. Total assets as of 2008 stood at USD 33 million and the total loan portfolio was approx USD 30 million with 26,661 active borrowers. Return on assets was 11.67 percent and return on equity stood at 36.24 percent. The 2008 debt to equity ratio was 2.79 [4].

Very limited information on Arvand is available currently in the public domain. Arvand also does not appear to have a web presence. Per limited information available, the organization was established in October 2008 by MicroInvest, an MFI in Tajikistan, in association with Frontiers LLC, a microlending company based in Bishek, Kyrgyzstan [5].

Bai Tushum was established in 2000 to provide financial, consulting and technical assistance services to micro-, small and medium enterprises in the Kyrgyz Republic [3]. As of 2008, Bai Tushum had assets of USD 53 million and a gross loan portfolio of USD 35 million with 18,930 active borrowers [6]. Return on assets was 5.76 percent and return on equity stood at 34.78 percent with a debt to equity ratio of 5.50 [6]. The MIX has awarded Bai Tushum a five-diamond rating from for disclosure, the highest rating available [6]. The Kyrgyz Republic joined the IFC in 1993 and the IFC has since committed almost USD 75 million to the country, including USD 5 million in advisory services focused on microfinance, housing finance, corporate governance, and business environment [3].

CredAgro is a non-governmental, non-profit lending organization based in Baku, Azerbaijan that provides access to working capital and investment loans to the agricultural sector. As of December 31, 2008, CredAgro had 13,773 active borrowers, a gross loan portfolio of USD 50.3 million, and total assets of USD 58.9 million. As of the same date debt-to-equity was 421.28 percent, ROE was 42.66 percent, and ROA was 8.01 percent. The MIX has awarded CredAgro a five-diamond rating from for disclosure, the highest rating available [7]. As recently reported by MicroCapital, CredAgro, along with two other MFIs, account for over half of Azerbaijan’s microfinance portfolio [8].

The International Finance Corporation is a member of the World Bank Group and was created in 1956 to foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments [9]. Its net worth at the end of 2008 was USD 18.3 billion [9, 10]. Microcapital has extensively covered the IFC’s contribution towards the microfinance sector; a list of our coverage on the IFC is available here.

By Bharathi Ram, Research Assistant

Bibliography:

[1] International Finance Corporation, Press Release, http://www.ifc.org/ifcext/media.nsf/content/SelectedPressRelease?OpenDocument&UNID=69346F6F7DA237608525760A0057A118

[2] International Finance Corporation, Azerbaijan and Central Asia Microfinance Transformation Support Project, http://www.ifc.org/ifcext/eca.nsf/Content/Azerbaijan_AdvisoryProjects?OpenDocument&ExpandSection=1%2C4#_Section1

[3] MicroCapital Story, IFC invests in Bai Tushum, https://www.microcapital.org/microcapital-story-international-finance-corporation-ifc-invests-usd-4-million-into-kyrgyz-microfinance-institution-bai-tushum/

[4] MIX Market, IMON, http://www.mixmarket.org/mfi/imon/data

[5] Kiva.org: http://www.kiva.org/app.php?page=businesses&action=about&id=122476

[6] MIX Market, Bai Tushum, http://www.mixmarket.org/mfi/bai-tushum/data

[7] MIX Market, Credagro, http://www.mixmarket.org/mfi/credagro-nbco/data

[8] Microcapital Story, IFC helps Credagro Improve Corporate Governance, https://www.microcapital.org/microcapital-story-international-finance-corporation-helps-acdivoca%E2%80%99s-credagro-in-azerbaijan-improve-corporate-governance/

[9] International Finance Corporation: http://www.ifc.org/

[10] International Finance Corporation, 2008 Annual Report: http://www.ifc.org/ifcext/media.nsf/Content/AR2008