75162 BRIEF Current Trends in Cross-Border Funding for Micro�nance In 2011, cross-border funders committed at least US$25 billion to micro�nance or �nancial services for the poor. CGAP research shows that levels of cross-border funding continued to increase despite the global �nancial crisis and strained national budgets, but at a much lower growth rate, indicating that cross-border funders were adjusting to the new environment. The analysis of the global trends in the micro�nance funding landscape in this Brief is based on data from CGAP’s surveys of cross-border funders.1 Commitments continue to driven by closed projects increasing at a significant rate increase, but at the slowest (on average US$2.2 billion per year). As a result, net new commitments to microfinance now represent only rate in the past five years 7 percent of total commitments compared to 31 percent Total commitments increased gradually over the of total commitments in 2009. past five years, but the average annualized growth decreased from an estimated 17 percent per year Public funding dominates, but between 2007 and 2009 to 6 percent per year private funding is growing between 2009 and 2011 (see Figure 1). faster than public funding The slower growth can be explained by the fact that Overall, the share of public funding continues to be funders committed the same amount of funding in new higher than the share of private funding (see Figure 2) projects in 2011 compared to 2009, and at the same time, at around two-thirds of the total commitments to more projects closed in the past two years. Most donor microfinance (US$17 billion). Private funders projects extend over several years, with average maturity represent approximately one-third (US$8 billion) of at around five years. Donors normally have a pipeline of total commitments. new projects that replace current projects as they mature. Between 2007 and 2009, new commitments averaged Private funding grew at a faster rate than public US$2.8 billion annually and closed projects averaged funding did in the past five years. Between 2009 and US$0.4 billion per year for a net gain of US$2.4 billion 2011, the average annualized growth rate for private per year. However, from 2009 to 2011, average net gain funding is estimated at 12 percent compared to the amounted to only US$0.6 billion annually, with change 3 percent growth rate of public funding. In contrast, Figure 1. Cross-Border Funding Commitments to Micro�nance, 2007–2011 17% Growth Rate US$ billion 30 18% 25 15% 20 12% 15 9% 6% 10 6% 5 3% 0 0% Dec07 Dec09 Dec11 49 funders in CGAP sample Total market esƟmate Annualized growth rate total market esƟmate Sources: 2008–2012 CGAP Cross-Border Funder Survey and 2008–2012 Symbiotics MIV Survey 1. For more information see “Methodology� at the end of this paper. The CGAP Cross-Border Funders Survey may be found at www.cgap.org/data and http://www.slideshare.net/CGAP/tagged/Donors%20and%20Investors. November 2012 2 Figure 2. Cross-Border Funding to Micro�nance by Recipient Type (Total Estimate US$25 billion, as of December 2011) Public Funders Private Funders (FoundaƟons, (Bilaterals, MuƟlaterals, DFIs) Other Donors, InsƟtuƟonal and Individual Investors) $17 $8 $5.1 $3.5 $6.9 $1.9 $0.3 $6.4 Micro�nance $0.9 Apexes and Other Government Investment Intermediaries Intermediaries (MIIs) MICROFINANCE Support on all levels of the �nancial system (Retail, Market Infrastructure and Policy) Sources: 2012 CGAP Cross-Border Funder Survey and 2012 Symbiotics MIVs Survey between 2007 and 2009, the average annualized Different growth rates growth rate for private funding is estimated at in commitments may 19 percent versus 16 percent for public funding. indicate an upcoming shift in regional allocations Institutional and individual investors drove the growth in private funding, and data suggest that despite South Asia (SA), Europe and Central Asia (ECA), and difficulties in some microfinance markets, these Latin America and the Caribbean (LAC) still receive investors still find microfinance to be an attractive the highest amounts of cross-border funding (see investment. On the other hand, data suggest that the Figure 3). These three regions combined receive slower growth in commitments by public funders can more than 60 percent of total commitments. be explained by the fact that some of these public funders investors had to adjust their commitments in However, regional allocation of funding is changing. response to internal pressures (e.g., budget cuts, staff As a result of the financial crisis, commitments to ECA capacity) and/or shifting objectives toward small and decreased by 5 percent per year on average between medium enterprise finance and more broadly financial 2009 and 2011 to reach US$3.1 billion. In contrast, inclusion. Out of 35 public funders reporting to CGAP, commitments to Sub-Saharan Africa (SSA), the Middle one-third decreased their overall commitments in 2011. East and North Africa (MENA), and East Asia and the Pacific (EAP) increased during the same period. More cross-border funding Commitments to SSA grew by 12 percent annually is channeled indirectly than on average to reach close to US$2.7 billion; a level directly to retail providers near that of commitments for LAC. While MENA (US$1.1 billion) and EAP (US$1.5 billion) still receive Cross-border funders tend to channel their funding the least funding for microfinance of all the regions, through intermediaries such as microfinance investment commitments in both regions increased significantly in intermediaries (MIIs)2 and local apexes that can offer cost- the past two years, with an average annualized growth effective ways to move funding quickly. Half of all cross- rate of 20 percent and 19 percent, respectively. border funding is channeled through such intermediaries (see Figure 2). One-third of all cross-border funding The main purpose of funding is allocated directly. Development finance institutions remains refinancing loan (DFIs) provide the bulk of direct funding (63 percent). portfolios of retail providers Multilateral agencies mainly channel their funding via developing country governments; this type of funding Depending on the stage of development of any represents 20 percent of all cross-border funding. given market, funders can provide different kinds 2. MIIs include MIVs and holdings. 3 Figure 3. Regional Allocation of Total Commitments, 2009–2011 $US billion Growth Rate 4.0 24% 3.5 21% 3.0 18% 2.5 15% 2.0 12% 1.5 9% 1.0 6% 0.5 3% 0.0 0% ECA LAC SA SSA EAP MENA MulƟ- -0.5 -3% Region -1.0 -6% Dec09 Dec11 Annualized Growth Rate Source: 2010–2012 CGAP Cross-Border Funder Survey of support at all levels of the financial system. They debt to finance the loan portfolio of retail providers can refinance the loan portfolio of retail providers, (see Figure 5). Multilateral agencies also provide loans and/or strengthen their capacity. Funders can also to governments that are then on-lent to microfinance support the market infrastructure and the regulatory institutions and/or used to support capacity-building environment. Both are important areas in integrating initiatives at all levels of the financial system. While microfinance into formal financial systems. multilateral agencies increased their debt funding by 3 percent per year on average, DFIs decreased their The bulk of cross-border funding continues to be used debt position by 1 percent per year on average. for refinancing retail providers (US$13.5 billion or 77 percent of the total commitments), while funding to Both equity investments and guarantees are important build capacity stood at US$2.7 billion or 15 percent of instruments because they can enable retail providers the total commitments (see Figure 4).3 Over the past two to access local sources of funding and build sustainable years there was little change in the purpose of funding. markets. Cross-border funders increased their funding through both equity and guarantee instruments. Debt dominates, but equity Between 2009 and 2011, equity investments increased and guarantees are on the rise by 12 percent per year on average. DFIs increased their direct equity investments in all the regions except Debt funding did not experience any growth between for ECA, where on balance they exited.4 They also 2009 and 2011, but it remains the main instrument used increased their equity investments in MIIs (by 10 percent by cross-border funders to fund microfinance (55 percent annually on average). The amount committed through of total commitments). DFIs most commonly provide guarantees increased by 32 percent per year on Figure 4. Purpose of Funding (% of Total Commitments as of December 2011) 2% 40% 37% 9% 4% 8% 0% 20% 40% 60% 80% 100% Re�nancing direct Retail capacity building Re�nancing indirect Capacity building at the market infrastructure level Unspeci�ed Capacity building at the policy level Source: 2012 CGAP Cross-Border Funder Survey 3. As of December 2011, US$1.3 billion (or 8 percent of total commitments) was reported as “unspecified.� 4. Equity investments by DFIs represent 82 percent of the equity investments reported to CGAP as of December 2011. Figure 5. Commitments by Instrument, 2009–2011 November 2012 $US billion 10.0 40% Growth Rate 8.0 32% All CGAP publications 6.0 24% are available on the CGAP Web site at 4.0 16% www.cgap.org. 2.0 8% CGAP 1818 H Street, NW 0.0 0% MSN P3-300 Debt Equity Grant Guarantee Other Washington, DC Dec09 Dec11 Annualized Growth Rate 20433 USA Source: 2010–2012 CGAP Cross-Border Funder Survey Tel: 202-473-9594 average in the same period. This was mostly driven by global environment and the shift toward a broader Fax: 202-522-3744 four large guarantee programs approved in 2010 that vision for financial inclusion, cross-border funders will Email: focused on EAP and India. likely continue to adjust their priorities and the way cgap@worldbank.org they operate, and support the broader sector. DFI funding growth slows © CGAP, 2012 and remains concentrated in Methodology a few countries and MIIs This Brief is based on data from the CGAP Cross-Border DFIs surveyed in 2012 are the largest type of cross- Funder Survey. In 2012, CGAP surveyed 59 microfinance border funders, accounting for 38 percent of the funders. Total global commitments to microfinance are estimated global commitments valued at US$9.6 billion estimated on data from 59 funders and publicly available as of December 2011. Their commitments grew at data from Symbiotics MIV Surveys (www.syminvest. a significantly slower rate between 2009 and 2011: com). As of December 2011, the 59 cross-border 4 percent per year on average compared to 36 percent funders reporting to CGAP represented 70 percent of per year on average between 2007 and 2009. the total market estimate of cross-border funding. Five countries (India, Turkey, Peru, Indonesia, and Trend data are available only bi-annually for a subset of Russia) accounted for 20 percent of DFIs’ total 49 cross-border funders; growth rates are annualized commitments (US$1.9 billion). Twenty-five percent according to the following method: Annualized of DFIs’ commitments to retail providers support only growth rate ϭ [(Ending value/Beginning value) (1/# 10 institutions (US$1.1 billion). Thirty percent of DFIs’ of years)]Ϫ1. For example, the annualized growth rate funding (US$2.9 billion) is channeled through MIIs, between 2009 and 2011 was calculated as follows: and two-thirds of this funding goes to only 10 MIIs Annualized growth rate ϭ [(Commitments 2011/ (US$1.9 billion). DFIs’ commitments to MIIs grew at a Commitments 2009) (1/2)]Ϫ1. This means that, if we slower pace between 2009 and 2011, with 9 percent have an average annualized growth rate of 10 percent per year on average compared to 51 percent per year between 2009 and 2011, commitments grew by on average between 2007 and 2009. 10 percent on average between 2009 and 2010 and 10 percent on average between 2010 and 2011. Looking ahead Despite the slowdown of growth in commitments The regional allocation of funding is based on all during the past two years, cross-border funders direct funding and indirect funding with a clear expect microfinance to remain important to their regional focus (e.g., funding via MIVs active in only development agenda. They are committed to pushing one region). All other indirect funding is allocated the frontier to expand financial services for the poor, to the category “multi-region.� The CGAP survey and count agricultural finance, rural finance, branchless does not capture policy-based lending of multilateral and mobile banking, and responsible finance as their organizations and DFIs’ large programs supporting the priorities for the next five years.5 In light of the current market infrastructure and policy levels. 5. Equity investments by DFIs represent 82 percent of the equity investments reported to CGAP as of December 2011. AUTHORS: Estelle Lahaye and Ralitsa Rizvanolli, with Edlira Dashi