Microfinance funding posts strong growth in 2009

MANILA, Philippines - Microfinance enjoyed strong growth in financing from a widening pool of donors and investors last year, according to the Consultative Group to Assist the Poor (CGAP).

CGAP is an independent policy and research center dedicated to advancing financial access for the world’s poor. It is supported by over 30 development agencies and private foundations, which share a common mission to alleviate poverty.

Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors, and investors.

Data in the survey is from December 2008, when the full effects of the financial crisis had not yet been felt by funding agencies. Two-thirds of respondents reported that the financial crisis did not affect their funding projections-upwards or downwards-for 2009.

Drawing on responses from 61 institutions worldwide, the CGAP microfinance funder survey shows that donors and investors committed $14.8 billion to microfinance as of December 2008, up 24 percent from 2007. Commitments reflect the amount funders have set aside for microfinance in all active projects. Disbursements totaled $3 billion in 2008.

“The report shows that overall confidence in microfinance remains high and that financial inclusion remains an important priority,” said CGAP chief executive officer Elizabeth Littlefield. “The microfinance market is growing and maturing. New investors are joining established investors like development finance institutions who value microfinance as a social investment, and as an investment that can offer solid returns over the long-term.”

Investors-development finance institutions (DFIs), and individual and institutional investors -continued to emerge as significant funders of microfinance.

However, the breakdown of total commitments from donor and investors is equal. Donors include regional development banks, United Nations (UN) agencies, foundations and bilateral and multilateral organizations. DFIs, the private sector arms of government-owned bilateral and multilateral development agencies, account for nearly half (45 percent) of total committed funding.

Half of DFIs reported increasing funding for microfinance as a response to the financial crisis, with a projected growth for 2009 of 39 percent. With a clear so-called double-bottom line investment approach, DFIs are bringing in money with a focus on both financial returns and social returns.

The growth in microfinance funding continues to be driven by a small group of funders that together represent 50 percent of total commitments: Germany’s KfW, the Asian Development Bank, the World Bank, the European Bank for Reconstruction and Development, and the International Finance Corp.

On the other hand, a large proportion of funders — roughly one-third of those surveyed — had less than $50 million each committed to microfinance.

“There is considerable scope for donors and socially-responsible investors to contribute to the expansion of financial access to the world’s poorest people,” said Jasmina Glisovic-Mezieres, manager of the survey. “Bilateral agencies and foundations, for example, can help build capacity at all levels of the financial system, while development finance institutions can invest in the next generation of microfinance institutions.”

According to the survey, debt financing represented 63 percent of total commitments in 2008, with the remainder provided as grants (17 percent), equity (11 percent), and guarantees (five percent).

Bilateral agencies have traditionally been the most important providers of grants, alongside the European Commission. Foundations are quickly emerging as important grant-givers as well, with an increase of 73 percent in total grant commitments over the previous year’s survey.

The Bill and Melinda Gates Foundation is the second-largest provider of grant financing. Sub-Saharan Africa received the greatest share of grant financing at 33 percent, with South Asia getting 22 percent of grants.

There is also some concentration in the destination of microfinance funding, with two regions in particular — Europe and Central Asia, and South Asia — attracting the largest share. South Asia received the largest amount of funding commitments with $3.65 billion in 2008, growing by 14 percent over the previous year.

Funding for microfinance in Eastern Europe and Central Asia grew by a robust 31 percent to $3.27 billion.

However, very different types of funders contributed to these regions. Donors provide the lion’s share of funding in South Asia, while investors dominate in Eastern Europe and Central Asia.