The Asian Development Bank (ADB) is to provide an additional $50 million in assistance for a successful microfinance program which is supporting growth and employment opportunities for large numbers of micro, small and medium-sized enterprises (MSMEs) across Asia.“Giving small enterprises and entrepreneurs the capital they need for sustainable growth is a critical tool for reducing poverty,” said Hasib Ahmed, Principal Investment Specialist in ADB’s Private Sector Operations Department. “This additional financing will allow ADB to expand its total exposure under the program and provide incremental financing for microfinance institutions (MFIs) in ADB member countries.”
The program has been implemented through a risk participation and guarantee structure. Under the program, ADB selects partner financial institutions that provide local currency loans to ADB-approved MFIs. ADB risk participates or guarantees the default risk of these MFIs, thereby catalyzing private sector participation and mobilizing additional funds for them.To date ADB has provided support equivalent to $207 million in loans to over 30 microfinance institutions in India, as well as Indonesia. Among the Indian-based private financing institutions taking part in the program are Induslnd Bank, Kotak Mahindra Bank, Federal Bank and RBL Bank (formerly Ratnakar Bank). Standard Chartered Bank is partnering with ADB in the risk participation structure.
A key impact from the program, which began in 2012, was an expected 10% increase in employment and productive output in the microenterprise sector. International Finance Corporation data shows that MSMEs in developing countries face a financing gap of about $2.1 trillion to $2.6 trillion, with an estimated 200 million to 245 million formal and informal enterprises having no access to finance, or finding it difficult to source funds. In India, the Andhra Pradesh crisis in the microfinance industry in 2010 resulted in an acute scarcity of liquidity for MFIs throughout the country.
The program has resulted in an increase in commercial private funding available to participating MFIs of $1.2 billion from 2012 to March 2015, and $53 million in fresh equity injections. The more than 200% rise in the number of borrowers over the period—almost all of whom are women—is a testament to the program’s success. The program has also catalyzed private sector direct support of $100 million through cofinancing.The December 2015 expiration date for the program, is waived, subject to 3-yearly reviews.ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.