68072 BRIEF Trends in Cross-Border Funding Microfinance funding is becoming more transparent. More than 60 microfinance funders regularly report information on their microfinance portfolio to CGAP, and extensive data are available on microfinance investment vehicles (MIVs) through Symbiotics and MicroRate. In 2011, CGAP surveyed the 20 largest microfinance funders, which represented over 85 percent of commitments reported in the previous survey year. Based on the findings of that survey and previous surveys, this Brief describes global trends in microfinance funding between 2007 and 2010. Cross-border funding Figure 2. Commitments by type of funder continues to increase (estimate Dec. 2010) Cross-border funding for microfinance has increased 30% over the past four years, reaching at least US$24 Public funders billion in commitments by December 2010, with 70% Private funders around US$3 billion disbursed in 2010.1 This estimate includes commitments from public and private funders supporting microfinance in developing countries. While total commitments, or the stock of funding, financial and social return expectations, and they use a increased gradually, the growth rates have come down variety of funding instruments. Public funders provide from an estimated 30 percent (2008) to an estimated around 70 percent of total cross-border funding, while 13 percent (2010) (see Figure 1).2 private funders provide around 30 percent (see Figure 2). Although private funding grew at a significantly An analysis of the microfinance portfolios of the 20 higher rate than public funding in 2009 (33 percent as largest microfinance funders shows that a larger number opposed to 11 percent), this difference diminished in of projects closed in 2010 (US$2.6 billion) compared 2010. Public funders increased their commitments by to 2009 (US$1.4 billion), while the amount of new 8 percent in 2010, and private funders increased their commitments was higher than in previous years (US$3.6 commitments at only a slightly higher rate.3 billion in 2010 compared to US$2.9 billion in 2009). Funders use diverse channels Private and public to support microfinance microfinance funders growing at similar rates in 2010 Funders provide funding both directly and indirectly. Overall, almost half of total cross-border funding is The number and diversity of funders has increased. channeled through MIVs and other intermediaries. In Today there is a broad range of funders with varying 2010, the 20 largest funders channeled 18 percent of their funding via MIVs and holdings (see Figure 3), Figure 1. Cross-border commitments to up from 13 percent in 2008, reflecting the growing microfinance (US$ billion) number of intermediaries entering the market and +13% 25 +17% +12% +7% their asset growth over the past years. The trend of +30% 20 +22% funding via intermediaries is driven by development 15 Total (estimate) finance institutions (DFIs) who increased their funding 20 funders in our sample 10 Annual growth rates: via MIVs and holdings from 22 percent (2008) of total +...% Total (estimate) commitments to 29 percent (2010). Direct funding 5 +...% 20 funders 0 Dec07 Dec08 Dec09 Dec10 1 All estimates are based on 2010 data from the 20 largest funders, 2009 data from 61 funders, and data from Symbiotics’ MIV survey. Commitments represent the total amount of all active investments and projects, whether the funds have been disbursed or not. The average project length is between three and five years. For more information, see “Methodology� on page 4. 2 Because 46 percent of commitments are denominated in Euro, the depreciation of the Euro against the U.S. dollar has negatively impacted total commitments and the growth rate in 2010. At 2009 exchange rates, growth of global commitments of the 20 largest funders would have been 11 percent instead of 7 percent. 3 The growth in private investments is estimated based on MIV data provided by Symbiotics. Symbiotics reports that MIV assets grew by 10 December 2011 percent from 2009 to 2010, compared to 25 percent in 2009 and 34 percent in 2008. MIVs receive around 25 percent of their funding from public investors, mostly development finance institutions included in the CGAP survey. Since public funders increased their commitments to MIVs by 15 percent in 2010, private investors must have increased their investments in MIVs by around 9 percent. 2 Figure 3: Funding channels (% of Figure 4: Total commitments by instrument commitments of 20 largest funders) (data from 20 largest funders) +6% 20 largest funders +1% Dec08 68% 64% Dec09 60% Dec10 38% 28% 18% 8% 8% +20% Annual growth rates +57% +12% +12% +93% Direct MIVs and Local apexes Unspecified -9% +19% Governments +20% holdings and banks indirect funding +13% 12% 13% 13% 13% 9% 11% 5% 6% 10% 5% 5% 6% Debt Equity Grant Guarantee Other Microfinance around 70 percent of equity investments, because (Support for retail institutions, market infrastructure and policy) the average investment in an MIV is larger than the average investment in a microfinance institution represented 38 percent of the 20 largest funders’ (MFI). The share of guarantees in total commitments commitments in 2010. increased from 5 percent (2008) to 10 percent (2010), mostly driven by four large new guarantee programs, Most funding to developing country governments which included a regional guarantee program focusing is provided by multilateral agencies and regional on East Asia and the Pacific (EAP) and a guarantee development banks. Funding to goverments program for India. decreased from 37 percent of total funding (2008) to 28 percent (2010), due to lower commitments from For the first time in the past four years, the amount of multilateral agencies overall. Governments use the grants committed by the largest 20 funders decreased funding to on-lend to retail financial service providers in 2010 (down 9 percent), mostly due to projects both directly or via apexes, for capacity building, or ending in 2010 and the fluctuations in the Euro/US$ to strengthen the market infrastructure and policy exchange rate, but also due to a slowdown in grants environment. approved. The 20 funders surveyed accounted for 67 percent of total grant funding in 2009. While other Debt remains most used grant funders could have increased their portfolio, it instrument; equity investments is unlikely that they would have reversed the general and guarantees increasing trend due to the lower absolute size of their portfolios. Debt remains the primary instrument used to fund Capacity building microfinance (see Figure 4), but its share in total remains steady commitments decreased from 68 percent (2008) to 60 percent (2010). There are many different types of The share of total commitments used for capacity debt funding, ranging from highly concessional to building has remained stable, representing between commercial. 14 and 17 percent of total commitments over the past four years. Capacity building is mostly funded Funders provide loans in both local and hard currency. through grants and loans to governments. While small Out of direct debt funding (i.e., funding that is in comparison to refinancing loan portfolios of MFIs, disbursed directly to a retail financial service provider), even small amounts of funding for capacity building only around 14 percent is provided in local currency. can potentially make a big difference (see Figure 5). Funders support capacity at all levels of the financial Equity investments and guarantees increased between 2007 and 2010. The share of equity funding Figure 5: The purpose of funding (% of in total commitments increased from 9 percent (2008) commitments of 20 largest funders as of to 13 percent (2010), and funders diversified their Dec. 2010) investments across a larger number of institutions. The 2% On-lending 20 largest funders had equity investments in around Capacity 2% On-lending Capacity building at the policy level 150 institutions in December 2010 compared to 86% building 14% 10% Capacity building at the market around 100 institutions in 2008. One quarter of these infrastructure level Retail capacity building institutions are MIVs and holdings, but they receive Note: Missing breakdown for AsDB 3 system—retail institutions, market infrastructure, and policy—with the retail level receiving the largest share Box 1. Funding for Policy Reform (see Box 1). Funders can contribute to favorable policy environments through grants or long-term loans to Regional allocation of governments. Projects focus mostly on regulation funding remains stable and supervision of MFIs and, to a lesser extent, on branchless banking and financial cooperatives. South Asia—home to some of the world’s most Other activities include support for national financial inclusion strategies, consumer protection, and populous and most developed microfinance financial education. The share of total commitments markets—attracted high levels of cross-border dedicated to policy work is small (2 percent of total funding over the past four years (see Figure 6). India commitments). Nonetheless a funder with the right has received the highest share of global funding skills, access to the relevant decision-makers, and (i.e., around 18 percent of the 20 largest funders’ a long-term commitment can make an effective commitments). Seventy-eight percent of funding to contribution even with a small budget. The main funders providing support at the policy level are the India is channeled through the government and 21 World Bank, Asian Development Bank, GIZ, Bill & percent through local wholesale institutions, such Melinda Gates Foundation, and USAID. as NABARD, ICICI, and SIDBI. Only 1 percent is provided directly to MFIs, since legal restrictions limit direct investments in Indian MFIs. Additional funding reaches India via MIVs and holdings.4 DFIs portfolios highly concentrated While there were no major shifts in the regional allocation of funding, growth rates vary across The 10 DFIs that participated in the CGAP Funder regions. Commitments to Latin America and the Survey in 2011 reported microfinance commitments Caribbean increased by 12 percent. Commitments of US$9.1 billion as of December 2010. Half of this to Eastern Europe and Central Asia (ECA) decreased funding was committed to only 30 recipients: 12 MFIs, for the first time in the past four years in dollar with an average investment of US$120 million per terms.5 Commitments to sub-Saharan Africa (SSA) institution, and 18 MIVs, holdings, local banks, and increased steadily, albeit at slower growth rates than funds with an average investment of US$160 million. commitments globally. Five of the funders surveyed expect to offer more funding for SSA in 2011. Funding Overall, the 10 DFIs provided direct funding to around from cross-border funders to the Middle East and 360 MFIs with an average of US$12 million committed North Africa remains relatively consistent at US$ to each institution. Out of these MFIs, 39 institutions 0.6 billion. Commitments to EAP increased by 49 received funding from three or more DFIs. With some percent—the highest growth reported in any region— exceptions, these 39 MFIs are part of an international thanks to a new large regional program and increased network (Procredit, Access, FMFB, MicroCred) and/or commitments to Indonesia. are leaders in their market. Two hundred and fifty-two MFIs received funding from only one of the DFIs in the survey sample. Figure 6. Commitments by region (US$ billion) +31% +15% -6% In 2010, DFIs channeled US$4.6 billion through 3.3 3.1 +65% 2.2 +5% 2.3 2.2 2.9 intermediaries, including US$2.6 billion through 50 +59% .8 1.3 +49% different MIVs and holdings, with three institutions, Dec07 Dec08 Dec09 Dec10 Multi-Region .6 -12% .6 -3% .6 +5% .6 Dec07 Dec08 Dec09 Dec10 .7 +10% +10% .8 .9 1.3 namely ProCredit Holding, EFSE, and Microfinance Eastern Europe & Enhancement Facility, representing close to half of Dec07 Dec08 Dec09 Dec10 Central Asia (ECA) Dec07 Dec08 Dec09 Dec10 Middle East & North Africa (MENA) East Asia & the +12% +17% Pacific (EAP) this amount. Some DFIs have considerable exposure +14% +2% -6% 3.5 +10% 3.3 +12% 1.7 1.7 3.1 +8% 1.5 2.8 +34% 2.3 1.3 2.0 1.4 1.9 Dec07 Dec08 Dec09 Dec10 to individual institutions, be it MFIs or intermediaries. Dec07 Dec08 Dec09 Dec10 Sub-Saharan Africa (SSA) Dec07 Dec08 Dec09 Dec10 On average, the top investee represents 13 percent Latin America & Caribbean (LAC) Data for the 20 funders in our sample South Asia (SA) of a DFI’s portfolio. This concentration decreased over Cross-border commitments to microfinance – US$ billion Annual growth rates 4 The country allocation of funding via MIVs and holdings is not available. 5 In Euro-terms commitments to ECA slightly increased in 2010, however, at a much lower rate than in previous years. December 2011 All CGAP publications the past years, as DFIs diversified their portfolios and commitments to microfinance are estimated based on are available on the CGAP Web site at number of investees. four years of data from the 20 largest funders, 2009 www.cgap.org. data from 61 funders, and data from 90 microfinance Looking ahead investment intermediaries collected by CGAP and CGAP Symbiotics. 1818 H Street, NW Cross-border funders remain committed to MSN P3-300 Washington, DC microfinance and financial inclusion more broadly. The regional allocation of funding is based on all 20433 USA Funders see responsible finance as one of their main direct funding and indirect funding with a clear focus areas in financial inclusion for the next five years, regional focus (e.g., funding via MIVs active in only Tel: 202-473-9594 likely as a response to the perceived reputation risks one region). All other indirect funding is allocated to Fax: 202-522-3744 associated with concerns around overindebtedness the category “multi-region.� DFIs’ commitments at in some markets.6 Going forward funders want to market infrastructure and policy levels are not fully Email: cgap@worldbank.org further play a role in moving beyond the credit-only captured by this survey. model and in increasing outreach to still under-served © CGAP, 2011 markets. Table 1: Funders surveyed in 2011 Methodology TYPE FUNDER(S) This paper is based on data from the CGAP Funder Public funders Survey, an annual survey conducted by CGAP with the Development Finance AECID, AFD Proparco, major cross-border funders. In 2011, CGAP surveyed Institutions DCA USAID, EBRD, EIB, FMO, IFC, KfW, MIF a subset of 20 microfinance funders that together IADB, OPIC represented 85 percent of total commitments Multilateral and UN AfDB , AsDB, EC, IFAD, reported in the previous survey year and included agencies World Bank the major funders in all regions (see Table 1). Unless Bilateral agencies CIDA, DFID, GIZ specified otherwise, data in this paper are given for Private funders this subset of 20 cross-border funders. Growth rates Foundations Bill & Melinda Gates of funding by level of the financial system and by Foundation purpose are based on a subset of respondents for Institutional Investors ABP which data are available for all four years. Total global 6 Projections made in this paragraph are based on funders’ qualitative statements. Future priorities in order of frequency mentioned by funders are rural finance, promoting responsible finance, supporting mobile and branchless banking initiatives, regulation and supervision, and supporting saving services. AUTHORS: Barbara Gähwiler and Alice Nègre