MICROCAPITAL STORY: Norwegian Governmental Agency Norfund Teams with Private Firms Ferd, DnB NOR Bank, Storebrand and Kommunal Landspensjonskasse (KLP) to Establish $117m Norwegian Microfinance Initiative (NMI) fund

A USD 117 million commercial fund named the Norwegian Microfinance Initiative (NMI) was recently launched to provide capital, loans and guarantees to microfinance institutions (MFIs) in developing countries. Planning for NMI began in 2007 and it was incepted through the collaboration of Norwegian organizations in both the public and private sector: Norfund, Ferd, DnB NOR Bank, Storebrand and KLP.

Of the USD 117 million funding, 50 percent will be supplied by Norway’s largest microfinance investor and government agency, Norfund (Norwegian Investment Fund for Developing Countries), while the private institutions will jointly provide the other half. Another government agency named Norad (the Norwegian Agency for Development Cooperation) has agreed to contribute the equivalent of USD 1.6 million annually to NMI’s technical assistance program. This aligns with a recommendation from CGAP’s (Consultative Group to Assist the Poor) 2002 Peer Review that Norad should encourage more training in microfinance.

The founders of Norway’s microfinance fund have structured NMI through two funds: the NMI Frontier Fund and the NMI Global Fund. In addition to the two funds is a technical assistance program. This structure will be facilitated by the newly created NMI A/S management company. The fund plans to invest both directly and indirectly in MFIs. NMI expresses an aim to have a 30 percent interest rate charged on all of its loan capital by the MFIs it lends to. This 30 percent interest rate has been criticized as excessive, and it is not clear how NMI will enforce this interest rate on its borrowers, as NMI is a wholesale lender. Reuters reported the Ministry of Foreign Affair’s press contact, Ragnhild Simenstad, to have clarified doubts about the interest rate only by saying that “thirty percent interest is normal for microcredit because the loans are very small, and small loans are more expensive to administer than larger loans”. She continued by indicating that local money lender’s interest rates were higher than the rate NMI is promoting. NMI will also have the MFI’s it funds delegate loans in local currencies to help reduce the inflation risk for the borrowers.

Ferd is a private, family owned group established in 1778. As both an industrial and financial group, Ferd manages long-term ownerships of companies while also facilitating national and international investments, including activities in real estate and venture capital. As of December 2007, Ferds Annual Report states that its total assets were the equivalent of USD 2.9 billion (p 18). It reported return on assets under management to be 6.5 percent (p 61).

DnB NOR is a Norwegian financial services group established in 2003. Through its 200 Norwegian locations and twelve international branches, DnB NOR provides services in retail, internet banking, pensions and insurances, real estate, and asset management. According to its most recent Annual Report, DnB NOR had the equivalent of USD 287.5 billion in total assets as of December 31^st 2007 (p 13). It also reported recorded return on assets to be 11.8 percent (p 35) and return on equity to be 22 percent (p 13).

Oslo-based Storebrand group was established in 1767 and provides pensions, life and health insurance, banking and asset management. Storebrand’s 2007 Annual Report states that the group’s total assets to be USD 74.5 billion (p 9). Its return on equity was 24 percent (p 6).

Kommunal Landspensjonskasse (KLP), is a Norwegian life insurance company that offers pensions, financing and insurance services in both the private and public sectors. According to its 2007 Annual Report, KLP had total assets of USD 37.9 billion (p 8) with realized return on assets of 7.53 percent (p 154).

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