OPIC’s 2011 annual report takes a look back at the agency’s first 40 years and highlights some lending programs from the 1970s that delivered loans – sometimes in amounts less than $1,000 – to individuals and small businesses in developing countries. Decades before microfinance became widely recognized as an effective tool for supplying small loans to individuals and small businesses, OPIC was using innovative financing, such as a Community Credit Guaranty program in Guatemala, for microlending in places facing tough development challenges, and to people who lacked access to traditional credit.
Today, microfinance is an established tool for development that has reached about 190 million people worldwide but in recent years, the microfinance industry has entered a period of slower growth following a surge in growth in the first part of this decade. At a time that the developing world continues to face a host of challenges such as access to credit and access to health care that are often best met by the targeted delivery of small amounts of capital, OPIC is focusing on the ways it can most effectively and efficiently advance access to finance in the regions and sectors that have the greatest need.
OPIC’s recent activity in microfinance is well aligned with agency-wide priorities. These include:
A Focus on Frontier Regions The rapid growth in microfinance lending over the past decade has been uneven across the developing world. A 2011 survey found that most microfinance investments were concentrated in Latin American Countries and in the Eastern Europe/Central Asia region – which together accounted for 75% of all investments, while Africa accounted for just 7% of the total. Similarly there is considerable variation in the range of financial services provided by microfinance institutions, such as savings accounts, mortgages, financial education, and non-financial services such as health and education. A World Bank analysis showed that 88% of adults in sub-Saharan Africa lacked access to a bank account, compared with 78% in South Asia, 60% in Latin America and the Caribbean, and 58% in both the Middle East and North Africa (MENA) The lack of access to financial services for so many people represents a major constraint to economic growth throughout much of Sub-Saharan Africa, a region that has been a longstanding priority for OPIC. Through investments such as the Access Africa Fund, OPIC is supporting smaller institutions that might otherwise lack access to capital.
This World Bank analysis captures differing levels of financial inclusion across the developing world. Darker shades of red reflect larger portions of the adult population who have a formal bank account.
Focus on Investing with Impact “Our clients are increasingly pushing us to do more in the impact investing space,” says Loren Rodwin, managing director at OPIC’s Micro-Small and Medium Enterprise (SMSE) unit. Impact investing aims to place capital in projects that will deliver social or environmental benefits as well as financial returns. This type of investing is evident across OPIC’s portfolio and is characteristic of many micro and SME lenders, that not only provide access to credit but provide other services such as health screenings that yield a positive developmental impact.
A good example of this type of work, which often extends beyond microfinance into other sectors such healthcare, is OPIC’s approval of a $5.4 million direct loan to the Medical Credit Fund (MCF). MCF partners with local banks in Sub-Saharan Africa to provide loans to small private healthcare providers serving low-income populations in Tanzania (pictured), Ghana, Kenya and Nigeria. These small loans help small medical clinics and other facilities purchase equipment and finance other operational improvements. MCF also works through local associations to provide technical assistance to help these facilities improve their quality of care and business planning. MCF provides funds for lending to healthcare facilities through an incremental process where facilities that have never borrowed from a bank initially start with a small loan and graduate to larger second and third loans based on borrower performance and need. After repaying the third loan, the facility should be well on its way to accessing future financing in the market as a repeat customer of the local bank.
The impact of even small investments may be best understood in terms of the vast need for improved health care in these countries. According to World Health Organization (WHO) data, Sub-Saharan Africa accounts for 11% of the world’s population but bears 24% of the global disease burden … yet accounts for less than 1% of global health expenditures.
Mobilizing private capital This recent story about Microvest Capital Management LLC, an OPIC loan recipient that makes debt and equity investments in microfinance institutions throughout the developing world, talks about “using the power of business to fight poverty,” and stresses that government resources and charitable donations are insufficient to address all of the world’s problems. OPIC understands that the private sector can be a force for good in the developing world and works to catalyze private investment, rather than compete with the private sector. Every dollar of OPIC support has catalyzed, on average, close to $2.70 in private investment.