Guaranteeing
the Future
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Center for Global Development
Discussion Syllabus
March 31, 2006
 Microfinance Development Model
 Microfinance Investment Landscape
 MicroCredit Enterprises Described
 Innovative Guarantor Model
 Policy Discussion
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Microfinance Investment Landscape (1)
3 Levels of Sustainability
 Impoverished women entrepreneurs: Create
and grow successful small businesses, repay
their loans and invest in their children
 Leading MFIs around the world: Creditworthy
and operationally self-sufficient; borrow and
repay loans
 MicroCredit Enterprises & Others: Raising
private sector capital, making MFI loans and
repaying capital sources
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Microfinance Methodology (2)
Trust, Solidarity and Grit
 Tiny business loans finance a poor woman to
succeed at the very thing she is already
determined to do:
Feed and Clothe Her Children
 New loans start as low as $25
 Simple skills, home-based businesses: fishing;
making soap; selling eggs; tending flocks;
weaving; growing crops
 Weekly repayment; short 4-to-6 month loans
 Village-level peer solidarity and responsibility
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Microfinance Investment Landscape (3)
MFIs: Banking for the Poor
 Locally-controlled, non-governmental minibanks
 Character collateral banking
“character…before money or property or anything
else…” -- J. P. Morgan (on the lending
criteria of the famed Morgan bank, 1912)
 Sustainable, creditworthy
 High transaction costs
 High interest rates, but fair (not loan sharking)
 97+% client loan repayment rate worldwide
 Need affordable expansion capital
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Microfinance Methodology (4)
Not a Cure-All
Microfinance Does Not….
 Build roads, schools




or clinics
Stop wars or clear
mine fields
Provide clean water
or electricity
Teach people to read
or write
Advance human or
political freedom
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 Clothe or house
tsunami victims
 End drug, sex or
human trafficking
 Preserve pristine rivers
or protect endangered
species
 Restore cultural
treasures or save tribal
cultures
Microfinance Investment Landscape (3)
Sources of Foreign Investment
75%
80%
70%
60%
50%
40%
25%
30%
20%
10%
0%
Public Sector
Private Sector
$1.6 billion in foreign investment
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Microfinance Investment Landscape (4)
Foreign Investment Instruments
68%
70%
60%
50%
40%
30%
24%
20%
8%
10%
0%
Debt Capital
Equity
Loan
Guarantees
$1.6 billion in foreign investment
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Microfinance Investment Landscape (5)
DFI MFI Recipients by Type
90%
80%
82%
70%
60%
50%
40%
30%
20%
10%
0%
18%
Regulated MFIs
NGO MFIs
$1.6 billion in foreign investment
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Microfinance Investment Landscape (6)
MFI Recipients by Geography
87%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
13%
Latin
America/Eastern
Europe
Other Regions
$1.6 billion in foreign investment
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MicroCredit Enterprises Described (1)
Organizational Profile
 Founded: 2005
 First loan, January, 2006 - $700,000 to Credito con
Educacion Rural (CRECER)




68,000 women clients
70% live in the mountainous Andes, Bolivia
99.6% loan payment rate
Average client loan = $185.00
 Cumulative loans, to date: $1.3 million; serving
about 13,000 women/clients
 Africa; Asia; Latin America, Anywhere
 Alliances:
 Calvert Social Investment Foundation
 Freedom from Hunger
 Oxfam America
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MicroCredit Enterprises Described (2)
Organizational Status





Today
$9 million of collateral
pledged
9 Guarantors
$4.5 million to loan
Up to 45,000 poor
client/borrower
beneficiaries
Up to 225,000 people
with food security
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Next Stages
 2006: $20 million total
pledged; 20 individual
Guarantors; $10 million to
lend; up to 100,000 loans
 Ultimately: $100 million by
diversified Guarantors,
including corporate and
foundation partners
Guarantor Model (1)
Basic Elements
 Guarantor controls assets, keeps all
financial gains
 Not a donation or grant
 Not an investment
 Shared pro rata risk
 18-month liquidity commitment (rolling
term, determined by the Guarantor)
 Private sector, accountable results
 Reaches the very impoverished in socalled “second tier” MFIs
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Guarantor Model (2)
Follow the $$Opportunity$$
Lender/Foundation
Line of Credit
Microfinance
Institution (MFI)
Guarantors
($1 million units)
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Guarantor Model (3)
Hypothetical Risk Analysis
Assumptions with 10 Guarantors:
 One MFI defaults, $700,000 loan (largest loan, to date)
 Guarantor earns modest 5% on $1 million of assets
Default Loss =
First Dollar Loan Loss Acct. =
Balance Due/All Guarantors =
Balance Due/One Guarantor =
Guarantor’s earnings =
Guarantor’s net loss =
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$700,000
$35,000
$665,000
$67,000
$50,000
$17,000
Guarantor Model (4)
5 Inherent Risk Factors
 No MFI collateral or viable assets
 Imperfect MFI due diligence
 No credible MFI default or
bankruptcy data
 Foreign currency risk
 Normal overseas investment risk
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Guarantor Model (5)
8 Risk Mitigation Factors
 60% borrowing cap per Guarantor
 All Guarantors share risk equally
 Rigorous, posted criteria for MFIs
 Loan portfolio geographic diversification
 First-dollar Loan Contingency Account (5%)
 Endowment for Microfinance Sustainability
 Thorough due diligence, fiscal review (next slide)
 Microfinance network collaboration (next slide)
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Guarantor Model (6)
Innovative Due Diligence
Quantitative Assessment: Financial
statements, social performance,
creditworthiness factors, etc. done by
MicroCredit Enterprises
Qualitative Assessment: Management,
organizational stability, board quality, etc.
done by respected microfinance network
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Questions,
Topics and
Discussion (1)
 Evaluating financial (and social) returns:
Who is accountable for what and to whom?
 Investor beware? Will there be a
“philanthropic investment bubble”?
 Do international vs. local capital markets
matter?
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Questions,
Topics and
Discussion (2)
 Does mission drift matter? Aren’t there
enough poor people to go around?
 Can microfinance cure malaria? Should
banks for the poor give away toasters?
Thank you!
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