27827 - IFC MLF

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Summary of Proposed Investment

Project Number

27827

Company Name

Global Gender-Smart Fund S.A., SICAV-SIF

Date SPI Disclosed

Dec 29, 2008

Country

World Region

Industry

Funds

Projected Board Date

Jan 29, 2009

Status

Active

Sector

Other Funds

Department

Global Industry, Financial Markets

Environmental Category

Previous Events

Approved : Jan 29, 2009
Signed : Feb 5, 2009
Invested : Feb 5, 2009

Project Description

IFC, together with KfW, proposes to rapidly launch a global Microfinance Liquidity Facility (“MLF” or the “Facility”) designed to support sound MFIs worldwide that may face a funding shortfall during this time of unprecedented financial stress. The IFC MLF is a pure “bottom-up” initiative, fully based on specific funding needs of a detailed pre-determined pipeline of MFIs operating globally. The MLF’s objective is not to support the impressive growth rates experienced by MFIs over the last decade, but to serve as a defensive facility to support strong institutions in the current credit freeze. This project will support over 100 MFIs operating in over 30 countries, including over 20 IDA countries. IFC will execute the program through the industry’s largest and most experienced fund managers in order to:

- provide a rapid and flexible response to market needs;
- achieve maximum possible outreach; and
- ensure efficiency.

Backed by KfW, IFC proposes to launch the MLF, a two phased Facility to support over 100 MFIs for a total of $500 million. A detailed bottom-up analysis of the market indicates needs of up to $1.8 billion through year-end 2009. IFC and its partners propose to execute the MLF in two phases providing needed funding of $500 million. A key element of the phased approach is how IFC will leverage additional financing and mobilize other partners to participate in funding the Facility.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	150.0
Equity

Development Impact

Direct Contribution to Poverty Reduction: This project will provide access to finance millions of borrowers over the life of the proposed facilities. Supporting productive small businesses will in turn stimulate growth, employment generation and poverty reduction. Furthermore, IFC’s proposed liquidity facility will:

- provide needed short-term funding so that MFIs can maintain operations and healthy portfolios;
- assure that MFIs can maintain their existing client base of micro-enterprises over the next 12-18 months;
- provide a reassuring signal to deposit taking clients of additional liquidity within MFIs; and
- maintain confidence in the microfinance asset class.

Support the Microfinance Industry in a Time of Crisis: By supporting the MLF, IFC will support over 100 MFIs operating in 30 countries (including 20 + IDA countries) by providing them with emergency commercial funding in order to maintain operations and provide comfort to their deposit clients. While IFC and other like-minded investors strongly support savings mobilization, by providing liquidity to financial institutions, IFC will also be providing confidence to microfinance deposit clients world-wide. IFC will coordinate with CGAP and its partners to disseminate facility information.

Demonstration Effect: IFC’s MLF should stimulate other local and international investors by demonstrating that MFIs represent a strong asset class in a time of crisis. This initiative will confirm IFC’s role as the industry’s lead investor and supporter through a rapid response to the market by implementing its counter-cyclical strategy.

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 enterp

IFC’s additionality is expected to be high at this critical time when the global financial crisis is eroding liquidity and is profoundly affecting the financial sector of emerging markets.

Liquidity Provider: In the current environment of low liquidity, IFC’s additionality is high as it will provide the so much needed funding to finance MFIs, in an environment where the funding has dried up and there are relatively few, if any, sources of funding.

Stamp of Approval and Mobilization: IFC and KfW’s participation in the proposed transaction will be an important market signal to other investors to participate. This would be particularly meaningful at this time of the financial crisis. The project, which is expected to be high profile, will make many investors feel more comfortable with MFIs, particularly critical at a time when lending is highly constrained.

Counter-Cyclical Role: IFC clients have valued the counter-cyclical role that IFC and KfW can play in the market when credit becomes constrained. This Facility allows IFC to play this critical role. Without IFC and KfW supporting the project, MFIs will continue to encounter funding difficulties and could ultimately be operationally constrained.

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, each fund manager will be required to:

- Develop a procedure to be applied by the MFIs, prior to disbursement, that is satisfactory to IFC, and that ensures that all investments by the MFIs to which funds are on-lent, are screened and processed to avoid supporting activities on the Microfinance exclusion list.
- Identify qualified persons to manage and implement the procedure in the MFIs
- Require the MFIs to demonstrate commitment and resources to implementing the procedure
- Require the MFIs to demonstrate commitment to applying the labor standards established by the IFC Performance Standard 2: Labor and Working Conditions
- Submit a periodic report to IFC as per a format to be provided by IFC

Contacts

For Inquiries About the Project, Contact

Mrs Monica Beck,
KfW
Private and Financial Sector Development Europe
Palmengartenstrasse 5-9, D-60325 Frankfurt am Main,
Germany

Tel: (49-69) 7431 4069
Fax: (49-69) 7431 2547

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IFC Corporate Relations
2121 Pennsylvania Avenue, NW
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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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