The ongoing debate over microfinance has highlighted one inescapable fact: the uneven funding for microfinance institutions (MFIs). An overwhelming majority of available funding goes to the top MFIs — largely because they are better known and vetted — leaving the majority of institutions with limited opportunities. Grameen Foundation and the Consultative Group to Assist the Poor (CGAP) have released three technical guides to deepen MFIs’ understanding of the landscape, the requirements and associated risks, and the tools to negotiate and execute the necessary documentation.
The guides cover loan guarantees, securitization and equity. With 69 percent of the loans from investment funds to MFIs still being issued in hard currency, the guarantees guide helps MFIs understand how to use guarantees to leverage local bank financing and become more integrated into their local markets. The securitization guide provides the basics on tapping a source of funding that has not been widely used in the sector. The equity guide provides key terms and conditions of investments and underscores the dynamics between first-time equity seekers and experienced investors who are savvy in negotiating key terms.
These guides supplement the 2006 CGAP publication on “Commercial Loan Agreements” and complete the coverage on the financing instruments available to MFIs.
PDFs of the guides are available at the following links: