The Regional Microfinance Risk Participation and Guarantee Program
What is the program?
Access to finance is often cited as a primary obstacle to the development of micro and small enterprises. For the most part, this is the target market of microfinance institutions (MFIs). Across Asia and the Pacific, many MFIs struggle to obtain the commercial funding they need to grow and to meet the demands of their clients.
The Microfinance Risk Participation and Guarantee Program of the Private Sector Operations Department of the Asian Development Bank (ADB) is a credit enhancement program designed to address a market gap by sharing risks to promote local currency lending to MFIs. ADB partners with financial institutions to increase their local currency funding and thereby address the financial needs of millions of people at the base of the pyramid across the region. Because of its risk-sharing nature, the program 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 $340 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 (2010–2017)
|New loans supported||$638.17 million|
|Number of microfinance institutions funded||20|
|Borrowers supported||3.49 million|
|Number of partner financial institutions||3 international, 4 local Indian|
|Countries covered||India, Bangladesh, 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 5 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
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.
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.
- Helping Finance Flow to Micro and Small Business Owners
- Microfinance Brings Rural Women One Step Closer to Their Dreams
- Brochure: Regional Microfinance Risk Participation Program
- Brochure: Inclusive Finance in Asia
- ADB and SCB partnership under the Microfinance Risk Participation and Guarantee Program extended loans of $325 million
Since 2013, ADB and Standard Chartered Bank (SCB) have collaborated through a risk participation arrangement to support the growth of the microfinance sector in Asia. So far, the partnership successfully facilitated the extension of 125 loans to 13 microfinance institutions in three countries, amounting to $325 million. Registration is required to download the report.
- Case study: Improving Credit Access for Entrepreneurs at the Bottom of the Pyramid