Camilla Nestor is Grameen Foundation’s Vice President for Microfinance Programs.
Starting today, hundreds will gather at the fifth annual Clinton Global Initiative (CGI) to publicly declare their commitment to alleviating some of the world’s most pressing social concerns. This year’s event also marks a milestone for Grameen Foundation. Five years ago we were part of the inaugural meeting, where we launched the Grameen Foundation Growth Guarantees Program – an initiative designed to increase microfinance clients’ access to loans by guaranteeing local funding for the microfinance institutions (MFIs) that serve them.
Today, the program has become one of the microfinance industry’s largest financing efforts dedicated to ensuring that socially-focused MFIs get funding in their local currencies, thereby minimizing their exposure to foreign exchange risk. Delivering on the promise made five years ago, in its first round of funding, the program has generated more than $145 million in financing for institutions in 12 countries, helping to create more 859,000 new microloans. [NOTE: The program is now in its second round of funding, has generated $160 million in financing, and helped create more than 1 million new microloans.]
With news of successful IPOs in the microfinance industry, one might think that MFIs’ financing problems have been solved. However, when MFIs are asked what their top constraints are, financing – particularly, local currency financing or patient social equity – tops the list. This is one of the key benefits of the Growth Guarantees Program. By focusing solely on local currency loans, the program helps MFIs avoid the foreign-exchange risk inherent in hard-currency loans (typically in U.S. dollars or Euros), while enabling them to build important linkages with their local commercial banks.
This milestone marker is also a reminder of the work that still lies ahead. In partnership with USAID, the Schwab Charitable Fund and others, we are working to leverage idle wealth in the US to generate growth capital for MFIs at a leverage factor of 3x (in other words, for every dollar of guarantee we place, the MFI can lend $3 to its clients). We are currently increasing our focus on regions and countries where commercial banks have yet to engage actively in the financing of microfinance in order to unlock capital for MFIs in their local markets.