25458 - GMF 2

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Summary of Proposed Investment

Project Number

25458

Company Name

The Global Microfinance Facility

Date SPI Disclosed

Mar 9, 2007

Country

World Region

Industry

Financial Markets

Projected Board Date

Apr 12, 2007

Status

Completed

Sector

Microfinance and Small Business - Non Commercial Banking

Department

Global Industry, Financial Markets

Environmental Category

Previous Events

Approved : May 24, 2007
Signed : May 31, 2007
Invested : Jun 25, 2007

Project Description

The project consists of a two stage investment in the Global Microfinance Facility (GMF), an existing project launched by IFC in 2004. The objective of the two-phased approach is to:

- Strengthen GMF (the Facility) in order to take a greater market role in sync with the increased demand for medium-term credit from microfinance institutions (MFIs); and
- Establish a partnership with a private bank so as to distribute investment paper issued by GMF to a wide market of investors. The project falls directly under IFC’s priority to boost both investment volume and development impact, which is through promoting collective investment vehicles.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management	5.0
Guarantee
Loan	16.0
Equity	2.0

Development Impact

- Significant Direct Contribution to Poverty Reduction:

The project will extend finance through MFIs to previously underserved groups: micro and small businesses who lack adequate sources of funding. IFC’s new investment will increase the availability of financial services to this large underserved group. Supporting productive small businesses will in turn stimulate growth, employment generation and poverty reduction.

- Scaling Up Microfinance:

By supporting an institution sponsored by GMF, this project will help scale up over 30 microfinance institutions by providing them with commercial funding in order to expand operations. This model should attract other private and commercial investors to do the same, thereby promoting investments in the microfinance sector.

- Demonstration Effect:

The integration of a major private bank into a microfinance Facility will be one of the first of its kind. This will show the way for other private banks to enter the market and promote this asset class globally. In addition, this will allow the bank to massively distribute this investment product to its institutional clients.

- Facilitate the access of MFIs to commercial funding:

The current demand of credit by underserved micro enterprises in emerging markets far exceeds the funding provided by donors and commercial lenders. In order to satisfy the demand and unleash the productive capacity of these micro enterprises, MFIs need to tap into commercial funding sources to support their expansion. The Facility enables MFIs to access capital from financial markets, which strengthens their balance sheets. The demonstration effect and the experience to be gained by commercial lenders to the MFI sector are expected to result in sustainable, commercial funding relationships.

- Increase Exposure in Africa:

Due to the increase in the facility’s size, shift in protection structure, and new incentive system, the project is expected to generate investment transactions in Africa than in the first GMF.

As private investors increase their participation in microfinance, IFC has a key role to play in developing and structuring innovative solutions to better attract a consistent flow of private capital in microfinance. GMF fits perfectly with IFC’s microfinance strategy in that IFC’s involvement is through a collective investment vehicle that has the potential to provide financing from private capital for over 30 MFIs operating in Africa, Asia, Eastern Europe and Latin America.

In GMF, IFC has the unique ability to create a partnership with a large private bank in order to massively distribute microfinance as an asset class in the EU. IFC plays a critical role in GMF through the following mechanisms:

- taking both a first loss and share of B “Mezzanine” debt;
- providing strategic support to the Facility; and
- sharing best practices and its global knowledge of the microfinance sector.

In addition, IFC holds a distinct ability to offer a Stand-by Liquidity Facility to provide a critical incentive for private investors to become more comfortable and active in providing long-term finance to MFIs. The mechanisms provide a solid platform for a private bank to enter the industry and have a long lasting impact. The wide distribution of microfinance as a profitable asset class to the EU market by a leading private bank will be the first of its kind. IFC’s role in the project has a demonstration effect that can be replicated in other countries and by other private banks downstream.

Through the participation of a private bank including pension funds in A “Senior” Notes, the facility provides an avenue of $150 million ($100 million from private investors) to finance both emerging and established MFIs. While the Facility’s portfolio and pipeline includes a few markets with developed financial sectors, such as Eastern Europe and Latin America, the targeted MFI clients are not only the “low hanging fruit”, but also MFIs who seek commercial local currency funding that cannot be accessed by local banks or in a cost-effective manner from other IFIs. In addition, the Facility has targets in both Africa and Asia that seek the financing solutions that GMF can offer.

This project involves IFC support for the business of microfinance, and has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. Considering the nature of activities supported, the project will be required to:

- Develop a procedure relevant to its business process, prior to disbursement, that is satisfactory to IFC, and that ensures that all its investments are screened and processed to avoid supporting activities on the IFC Microfinance Exclusion List;
- Commit to establish a similar screening process to avoid supporting activities on the IFC Microfinance Exclusion List in MFIs in which it will take a controlling stake;
- Demonstrate commitment and resources to implementing the procedure, and take action to remedy any gaps in implementation on an ongoing basis; and
- Submit a periodic report to IFC as per a format to be provided by IFC.

Contacts

For Inquiries About the Project, Contact

Magally Fouscas Obrenovich
Cyrano Management
Calle Bolivar #472, of. 702
Miraflores, Lima, Peru

Telephone: (51-1) 446 8877
Fax: (51-1) 446 8585

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This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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