OPIC’s microfinance funding to help recovery in ‘dried up’ economies

By Asma Aziz

Microfinance Focus, Feb. 2, 2010: In times when the global economies are still reeling from the after-effects of financial meltdown, United States’ investment agency, the Overseas Private Investment Corporation (OPIC), has mobilized its resources and skills to facilitate their recovery.

Since its inception in 1971, OPIC has been active in more than 150 emerging markets and developing nations, and over the agency’s 38-year history, it has supported $188 billion worth investments that have helped developing countries to generate over 830,000 jobs. OPIC projects have also generated $72 billion in U.S. exports and supported more than 273,000 American jobs. It is currently supporting 495 projects with nearly $12.3 billion in financing and political risk insurance.

As a corollary to the shift in US foreign policy and President Obama’s growing commitment towards achieving greater co-operation with neighbours, OPIC along with the Multilateral Investment Fund of the Inter-American Development Bank (IDB/MIF), Inter-American Investment Corporation and international investors had signed a memorandum of understanding in September last year 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 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 Fifth Summit of the Americas in Trinidad in April 2009.

OPIC’s board of Directors approved a $ 125 million loan in November 2009 for the facility. The proceeds of the loan will be used by the fund manager, Blue Orchard Finance, to make loans to MFIs in Latin America and the Caribbean. The fund will have an initial capitalization of up to $156 million and a maximum capitalization of $250 million, and is expected to begin investing by the second quarter of 2010.

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.

OPIC has also committed a $25 million loan to a newly-formed NBFI, Velfin in Mexico, which in turn will provide credit financing to other Mexican NBFIs, called sofoles and sofomes. By acting as a wholesale lender, Velifin will serve as a source of secondary financing for credit-constrained NBFIs, bringing increased liquidity to the underserved SME and microcredit sectors.

Holding on to its mission of facilitating the participation of United States private capital and skills in the economic and social development of less developed countries and areas, and countries in transition from nonmarket to market economies, OPIC has been instrumental in financing development projects in struggling economies. It has partnered with banking giant, the Citibank and is providing financing to 23 MFIs in 13 countries through a series of risk sharing arrangements. In September 2009, it approved USD250 million to participate in Citi’s local currency loans to MFIs across the globe.

As a measure of providing access to increased technical assistance and foreign direct investment to underserved micro and small enterprises in Africa, OPIC has concluded an agreement in August 2009 with the African Trade Insurance Agency (ATI), Africa’s only multilateral trade and political risk insurer. Foreign direct investment was down by 18 percent in Africa last year due to economic downturn and the agreement aims to restore confidence of prospective investors in the continent. OPIC has provided nearly $5.6 billion in financing and political risk insurance to 387 projects in Africa over its 38-year history. OPIC’s current portfolio on the continent comprises $2.5 billion in support for 91 projects.

Mobilizing the U.S. private sector to advance U.S. foreign policy and development initiatives, OPIC-supported projects make a difference by expanding economic development, which can encourage political stability and free market reforms. Trailing on United States’ road map to establish peace and stability in the disputed land of West Bank, OPIC has offered $10 million loan to an Israeli bank last year. The project is expected to generate up to $140 million in new lending to SMEs and at least 7000 new jobs in two impoverished regions of Gilboa and Negev of the country.

Supporting lending to small and medium size enterprises, OPIC has committed hundreds of millions of dollars to the sector in collaboration with financial giants like Citi and GE Capital. It has made a provision of $200 million in financing SMEs throughout Central America in May 2009 which comprises of loans to subsidiaries of BAC/Credomatic Group, one of the leading financing institutions in Central America, in each of the region’s six countries: $60 million for Costa Rica; $47.5 million for El Salvador; $35 million for Guatemala; $37.5 million for Honduras; $12.5 million for Nicaragua; and $7.5 million for Panama.

OPIC also committed $100 million to Garanti Bank of Turkey in December 2009 to finance its medium-to-long term loans to SME clients and expand its SME portfolio. Loans are expected to be made to businesses involved in a variety of sectors, including manufacturing, tourism, services, and construction. The funds are considered of immense help to the nation where SMEs account for more than 99% of total enterprises and 78% of total employment, but they contribute only 7% of domestic investments and obtain only 5%-14% of bank loans.

Advancing United States foreign policy and development initiatives, OPIC continues to support economic reforms in developing nations and strives to meet the credit crunch in emerging markets. Post global crisis it has emerged as a major lender to assist financial recovery of hard-hit sectors and seems willing to go a long way to help ailing economies.

Related Posts:

• OPIC provides $250 million to OPIC-Citi microfinance fund
• OPIC Board Approves $125 MN Microfinance Fund for Latin America
• New $15 million credit facility for smaller Microfinance institutions
• BlueOrchard participates in the launch of new lending facility for microfinance in Cancun
• BlueOrchard to manage US microfinance fund for Latin America, Caribbean
• MIGA explores potential in Uzbekistan, Georgia
• IFC proposes to invest $10m or 20% in Cygma Fund
• IDB approves $2.25m Program for Haitian Microfinance Institution

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