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OPIC Signs Agreement to Establish Microfinance Facility for Latin America

September 30, 2009

AREQUIPA, Peru – Responding to President Obama’s announcement at the Summit of the Americas in April, the Overseas Private Investment Corporation (OPIC), the Multilateral Investment Fund of the Inter-American Development Bank (IDB/MIF), Inter-American Investment Corporation (IIC) and international investors today signed a memorandum of understanding (MOU) to establish a facility that will provide funding for microfinance institutions (MFIs) in Latin America and the Caribbean, enabling MFIs to rebuild their lending capacity following the global credit crisis. The facility has a target capitalization of $250 million.

President Obama announced at the Fifth Summit of the Americas in Trinidad that OPIC, IDB/MIF and IIC would partner to launch a microfinance facility for Latin America and the Caribbean, as a response to the impact of the global financial crisis on the availability of finance for micro and small businesses.

“The global credit crisis is having a significant and harmful impact on the availability of finance for micro and small businesses that provide a majority of the jobs in the hemisphere. This fund will provide stable medium and longer-term sources of finance to microfinance institutions to help rebuild their capacity to lend during this difficult period and to increase the supply of finance for micro and small businesses as recovery takes hold,” President Obama said at the Summit.

Pending approval by the OPIC Board of Directors, OPIC will provide a loan of up to $125 million to the facility. Proceeds of the OPIC loan, together with equity contributions from other sponsors, will be used to make loans to MFIs in Latin America and the Caribbean, which in turn will expand their microfinance lending activity. The facility is expected to begin investing by the second quarter of 2010.

At a signing ceremony at the Inter-American Forum on Microenterprise in Arequipa, Alexis Ludwig, political counselor for the U.S. Embassy in Peru, signed the MOU on behalf of OPIC. IDB President Luis Alberto Moreno signed on behalf of  IDB/MIF and IIC, which are also contributing to the fund. Other sponsors signing the MOU were the Andean Development Corporation, Norwegian Microfinance Initiative, FMO (Netherlands Development Finance Company), and Gestion Fonidi Inc, a subsidiary of Developpement International Desjardins of Canada.

The U.S. investor in the facility is Accion International, a nonprofit organization which supports microfinance and international economic development.

Blue Orchard Finance, S.A., the world’s largest fund manager specializing in the microfinance industry, was selected to manage the facility.

“Microfinance plays an important role in increasing economic opportunity in developing countries, particularly for people at the lower-income segments of society.  The industry’s rapid growth has been interrupted by the global financial crisis, however, slowing lending activity and putting portfolios at risk,” said OPIC Acting President Dr. Lawrence Spinelli. “As economic recovery takes hold, MFIs’ portfolio growth is expected to resume – and this facility will provide a new source of finance to support that growth throughout Latin America. OPIC is extremely pleased to partner with the IDB/MIF, IIC and the fund’s co-sponsors to support President Obama’s announcement.”

IDB President Moreno said, "microfinance in Latin America and the Caribbean has achieved a great deal, especially over the last decade. However, we need to remember that approximately 60mm micro-entrepreneurs in the region remain without access to finance. This new facility will allow microfinance institutions to recapture their capacity to lend, and provide an engine of growth for the region as they reach out to this underserved population".

According to a recent report funded by IDB/MIF, there are an estimated 636 MFIs currently financing about 9.5 million microenterprises in the region, with an outstanding loan portfolio of $10.9 billion. Loan growth rates have averaged more than 35 percent per year since 2002, as MFIs had ready access to debt and equity financing, from both domestic and international sources, to meet their funding needs. As domestic and external debt financing contracts, regional MFIs could confront a financing shortage of up to $750 million this year.