The Regional Microfinance Risk Participation and Guarantee Program | Asian Development Bank

The Regional Microfinance Risk Participation and Guarantee Program

What is the program?

Access to finance is often cited as one of the primary obstacles for micro and small enterprises. Institutions targeting this market segment are mostly only microfinance institutions. Across Asia and the Pacific, many of these institutions struggle to obtain commercial funding for growth and to be able to meet demands of their clients.

The Regional Microfinance Risk Participation and Guarantee Program of ADB’s Private Sector Operations Department is a credit enhancement program and was designed to address a market gap by sharing risks to promote local currency lending to microfinance institutions. ADB partners with financial institutions to increase their local currency funding and thereby addresses the financial needs of millions of people at the base of the pyramid across Asia and the Pacific. Due to the risk sharing nature of the Program, it encourages private sector participation.

Due to its success, the program’s expiration date was removed and brought into ADB’s mainstream operations, also increasing the overall program limit to $240 million. The program currently works in India, Bangladesh, and Indonesia and will further expand regionally to ensure more low-income clients can get access to financial services.

Program highlights

New loans supported from 2010-2016 $422 million
Cofinancing from 2010-2016 $227 million
Number of microfinance institutions funded from 2010-2015 19 
Borrowers supported from 2010-2016 2.4 million, mostly women
Number of partner financial institutions from 2010-2015 2 international, 4 local Indian
Countries covered India, Bangladesh, and Indonesia

How it works

The program promotes incremental lending to microfinance institutions in local currency in ADB’s developing member countries. Under the program, ADB works closely with selected partner financial institutions that provide wholesale loans to microfinance institutions. ADB will assume up to 50% of the default risk arising under loans made by these financial institutions to microfinance institutions, having a maximum tenor of 3 years.

The program is open to both international and domestic financial institutions that are able to meet ADB’s eligibility criteria and due diligence requirements. Once accredited, the institution submits microfinance institutions to be included into the program. ADB will approve a limit for each microfinance institution subject to the result of its own institutional review.

Who can participate

The program is open to international and domestic financial institutions. General minimum criteria include:

  • Credit rating of BB or higher (or equivalent) from at least one international or local credit rating agency and/or recognized by industry as a key player in microfinance sector 
  • Reputable and sound ownership, management and governance standards (including composition of the board of directors)
  • Acceptable underwriting policies and standards
  • Dedicated approach to the microfinance sector, including teams at both relationship manager as well as, risk management levels
  • At least 3 years of lending experience to the sector with non performing loans of less than 5%

Partner Financial Institutions

  • Standard Chartered Bank
  • Citibank NA
  • IFMR Capital
  • RBL Bank
  • Kotak Mahindra Bank
  • IndusInd Bank

Products

The program offers two structures through which ADB works with partner financial institutions.

(1) Risk participation

Under the risk participation structure, ADB shares on a pro rata basis the default risk of ADB approved microfinance institutions. This structure is often more suitable for financial institutions that have a regional network. The structure is valid in various countries and only one agreement is to be executed..

(2) Guarantee structure (India specific)

In the guarantee structure, which is India-centric, the partner financial institution's role is split between two entities – one to perform as an arranger and the other as local currency lender. In the risk participation structure, the default risk is shared on a pro rata basis between arranger, local currency lender and ADB. The reason for the guarantee structure is the legal context in India.

Client testimonials

Bob Annibale, Global Head of Inclusive Finance, Citibank

Citi is pleased to collaborate with ADB to broaden financial inclusion in Asia through an innovative microfinance local currency partnership that will help many of Citi’s clients achieve their mission in unlocking the economic potential of underserved communities. We value and share ADB’s deep commitment to supporting inclusive finance in Asia.

Daniel Hanna, Global Head, Public Sector and Development Organisation, Standard Chartered Bank

Standard Chartered remains committed to the microfinance sector which plays a crucial role in financial inclusion in our franchise markets. The Risk Participation program with ADB since 2013 has helped to unlock additional funding to microfinance institutions at a time when the industry was re-emerging from a difficult economic cycle. We expect that the increased size of the program from $190 million to $240 million will extend additional credit flow to microfinance institutions across Asia thereby reaching more unbanked individuals and finance additional micro enterprises and livelihoods.

Rakesh Dubey, CEO, SV Credit Line

SV Credit Line is pleased to be associated with the credit guarantee program started by ADB for the benefit of microfinance institutions. It is a really helpful initiative contributing towards growth and development of the society. The association has facilitated us in reaching out to additionally 20,000 financially underserved families; thereby helping us in impacting 100,000 lives.

Dr. Kshama Fernandes, MD and CEO, IFMR Capital 

IFMR Capital joined hands with ADB in 2012 and pioneered the guarantee programme for microfinance in India. Over the last four years, this program has helped unlock mainstream financing for the microfinance sector in India. It has set many high quality microfinance institutions on their growth trajectory and helped them achieve scale. The program has had far-reaching impact evidenced in the enabling of access to finance to over 2.1 million underlying households. IFMR Capital greatly values the partnership with ADB. 

Govind Singh, Founder and CEO, Utkarsh Microfinance

ADB committed to effectively address the challenges being faced by the micro finance sector post the Andhra Pradesh crisis. The program provided by ADB came at critical time, as it helped us to access loan from a bank which created momentum for getting loan from other banks. We at Utkarsh Microfinance truly appreciate the initiative taken by ADB at a crucial juncture. We have benefitted immensely by partnering with an organization of international repute.

Further reading

Brochure: Inclusive Finance in Asia