Microfinance Funding Continued to Grow in 2008

Oct 2009
Washington, United States, October, 29 2009 - Donors and investors continued to direct a growing stream of funding to microfinance in 2008, according to a new survey by CGAP. In 2008, microfinance funders disbursed US $3 billion and increased their commitments by 24%, reaching US$14.8 billion committed as of December2008. The majority of funders reported that the onset of the financial crisis had not affected their funding projections for 2009.

This second annual CGAP funder survey, presenting a broad picture of cross-border funding flows into microfinance for 2008, included responses from 61 donors and investors that represent an estimated 80% of the funding to microfinance.

The survey showed the diversity of funders supporting microfinance, each bringing different instruments, and levels of experience and expertise to the table. Of the 61 funders surveyed, 38 were donors and 23 were investors. The actual commitments provided by both were roughly equal in 2008, reflecting the growing importance of funding from investors, including development finance institutions, and individual and institutional investors.

“The survey gives further reassurance that the crisis is not deterring donors and investors in their continuing support of microfinance,” says Elizabeth Littlefield, CGAP’s Chief Executive Officer. “If anything, the base of support is growing as investors are attracted to the social and financial benefits of microfinance and its role in promoting financial inclusion – the so-called double-bottom line.”

The survey showed that the strong growth in funding commitments to microfinance was driven by a solid core of five funders, representing 50% of total funding: Germany’s KfW, the Asian Development Bank, the World Bank, the European Bank for Reconstruction and Development, and the International Finance Corporation.

In spite of continuing problems with global financial markets, two-thirds of funders reported that the crisis did not affect their funding projections for 2009, either upwards of downwards. Notably, development finance institutions were the exception, with half of those surveyed saying that they expected to increase funding in 2009.

In examining the nature of funding flows, the CGAP survey showed that nearly two-thirds of total funding commitments were in the form of debt instruments, with grants comprising 17% of the total, equity 11%, and guarantees 5%.

Bilateral agencies - alongside the European Commission - were the single largest providers of grant financing in 2008, although foundations are showing signs of catching up. While still comparatively small, commitments from foundations jumped 73% last year, with the Bill and Melinda Gates Foundation now the second-largest provider of grant financing overall.

According to the survey, much of these funding flows continue to be concentrated in two regions, with Eastern Europe and Central and South Asia attracting about half of the total funding.

“The survey shows there is considerable scope for donors and socially-responsible investors to play even stronger roles in helping the poorest people get access to finance,” says Jasmina Glisovic-Mezieres, the survey manager. “Building capacity within the financial system is a key priority suited to the bilateral agencies and foundations, particularly in Africa, while the development finance institutions can do more to identify and invest in the next generation of microfinance institutions in developing countries.”

Of the US$14.8 billion in total funding committed for microfinance as of December 2008, US$3.65 billion is allocated to South Asia, US$3.27 billion to Eastern Europe and Central Asia, US$2.17 billion to Latin America and the Caribbean, and US$1.97 billion to Sub-Saharan Africa. East Asia and the Pacific has US$1.10 billion and the Middle East and North Africa US$717 million. The remaining US$1.92 billion is allocated to multi-region initiatives.

Growth in commitments was strongest in East Asia and the Pacific, with a 33% increase over 2007, followed by Eastern Europe and Central Asia, and Latin America and the Caribbean, at 31% each. South Asia and Sub-Saharan Africa experienced growth in commitments of 14% and 13% respectively, while the Middle East and North Africa saw a modest decline of 5%.

The survey further reveals that 84% of funding committed is earmarked for financing portfolios of retail institutions, while 9% of funding is for capacity-building within MFIs, representing critical support, given the rapid growth of many MFIs in recent years. More than one-third of the funding for capacity building is for Sub-Saharan Africa.

Source : CGAP

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