ADB strengthens microfinance guarantee

MANILA, Philippines — Manila-based Asian Development Bank (ADB) has raised the funding for its microfinance guarantee and risk-sharing program by an additional $100 million to extend its coverage across the Asia and Pacific region.

The multilateral bank’s guarantee and risk participation program for selected microfinance institutions (MFIs) has so far supported over three million owners of small businesses across the region.

Under the program, ADB selects partner finance institutions that provide wholesale local currency loans to ADB-approved MFIs. ADB then assumes up to 50 percent of the default risk arising under loans made by these financial institutions to MFIs, having a maximum tenor of three years.

“Giving small businesses and entrepreneurs access to finance is one proven tool to improve livelihoods and reduce poverty,” said Sabine Spohn, senior investment specialist in ADB’s Private Sector Operations Department.

“ADB will continue to expand its support for those at the bottom of the pyramid by increasing the size and scope of the microfinance program,” Spohn said.

Since 2010, ADB’s microfinance program has supported $622 million in new loans, and an additional $327 million in cofinancing. Standard Chartered Bank and Citi as well as IFMR Capital, IndusInd Bank, Kotak Mahindra Bank, and RBL Bank are backers of the program in the risk participation structure.

The program is currently available in India, Bangladesh and Indonesia but will be expanded regionally to service more countries with the additional funding.

ADB said the program would also be able to partially guarantee bonds and securitization transactions issued by MFIs, thereby enabling greater access by MFIs to capital markets and broadening diversification of funding sources. Tenor on ADB guarantees will also increase to up to five years.

“Combined, these changes will offer the program’s partners greater flexibility and encourage a broader range of financial institutions to participate in the program,” the ADB said.