Advancing development by investing in microfinance: OPIC’s Richard Greenberg explains
OPIC, which has actively supported microfinance investment for more than a decade, recently announced that it has surpassed the $1 billion mark in financing to support microfinance projects around the world. Here, Richard Greenberg, OPIC Managing Director, OPIC Micro and SME Finance, discusses the important role microfinance places in OPIC’s development mission, and why OPIC financing plays an important role in the microfinance sector.
Explain the role microfinance plays in OPIC’s larger mission of addressing major world development challenges and what OPIC contributes to the microfinance sector?
One of the world’s biggest development challenges is the lack of financial services. Millions of people around the world don’t have a bank account, which makes it extremely difficult for them to start or grow a small business or save to purchase a house. Microfinance is an important tool for advancing development by increasing access to finance for unbanked and underbanked populations. And for OPIC, partnering with microfinance institutions is an effective way for us to reach individual borrowers in these often remote populations. Because the demand for microfinance continues to grow, and there is not enough financing available from banks and other private lenders to meet the demand, development finance institutions like OPIC have an important role to play. OPIC’s support is particularly valuable because we can meet the needs of many MFIs for longer term loans, and we support investing in markets all over the developing world.
Can you offer an example or two from OPIC-supported microfinance projects of how some individuals, entrepreneurs or families have benefited from small microfinance loans?
There are so many. In Peru, a local artisan who obtained financing through our partner Global Partnerships was able to expand her business to hire 45 women. In India, a former factory worker useda loan from Ujjivan to start a small dressmaking business. And OPIC’s support for Habitat for Humanity’s Microbuild Fund has helped thousands of families around the world obtain loans to build or improve their homes.
How did OPIC start investing in microfinance?
One of the first microfinance projects was a loan to Compartamos, a Mexican microfinance institution in 2000. In 2007 as the industry was experiencing growing demand, we formed OPIC’s microfinance unit. At that time, there were numerous young microfinance microfinance investment vehicles playing a key role in meeting the demand for finance and OPIC provided them with much needed capital which they on-lent to their partner microfinance institutions.
How has OPIC’s approach to microfinance investing evolved over time?
As microfinance has evolved, we have evolved our role in order to provide financing where it is most needed and where it can be most effective in advancing development.
Today, OPIC supports microfinance investing by providing financing to various industry participants, including microfinance institutions, which lend directly to individual borrowers; as well as microfinance investment vehicles that channel capital efficiently to microfinance institutions around the world; and microfinance networks such as FINCA, which operates microfinance institutions in 23 countries from Mongolia to Mexico. A $45 million OPIC loan to FINCA has been used to on-lend to FINCA affiliates in numerous countries, and is expected to support tens of thousands individual loans to the lowest-income entrepreneurs, many of whom are women. We’ve also supported the launch and growth ofMFX Solutions, an innovative effort by some leading microfinance investors to facilitate the flow of local currency lending to MFIs and mitigate the risk associated with currency exposure mismatch.
These partners reflect the broad spectrum of approaches to microfinance investing, from those that are more commercially oriented to those that are more socially oriented that are good at serving smaller and more remote markets. OPIC considers carefully the role that a potential partner is playing in advancing these objectives and chooses to provide financing to those that we believe will use OPIC financing most efficiently and for the greatest benefit.
In recent years, there has been widespread recognition that the role of microfinance extends well beyond providing credit to other financial services, such as savings, insurance, and financial literacy, as well as other non-financial services such as healthcare or energy-related needs.
In addition, the tools to provide microfinance and related services to customers is evolving quickly with the increasing use of mobile platforms and other technology. OPIC will continue to work with microfinance partners that innovating to make microfinance lending more efficient. An equally key criteria in order to become an OPIC partner is a commitment and ability to operate according to best practices for responsible lending which the industry has adopted through the Smart Campaign and other initiatives.
Finally, it is very important to note that OPIC’s portfolio of microfinance investments has performed very well. Explain why investing in some of the world’s poorest people can make financial sense.
Well, first of all OPIC has a rigorous selection and underwriting criteria to determine which projects we will support and we structure our financing in a way that meets the needs of our borrowers while providing appropriate risk protection to OPIC as a lender. But the strong performance of our microfinance portfolio also reflects the continued strong demand for financial services among the world’s unbanked populations, the increasing number of highly performing microfinance institutions globally, and the growing value of microfinance to its borrowers the countries where they live.