> Posted by Iftin Fatah, Portfolio Monitoring Specialist, Overseas Private Investment Corporation

MCE Guarantor Model (click to enlarge)

Microfinance institutions (MFIs) are crucial to advancing financial inclusion. But they can’t go it alone. For instance, MFIs need pools of capital to lend to their clients – which is a key constraint to the growth of the inclusive finance industry, stemming from factors like limited capital sources, investor weariness, and regulatory limitations, to name a few. According to the World Bank, two billion people — or 38 percent of adults in the world — do not use formal financial services and 73 percent of the world’s poor are unbanked. Most of these people live in developing countries, where access to even the most basic services like checking accounts, savings accounts, or small business loans, is limited.

The Overseas Private Investment Corporation (OPIC) supports microfinance lending in these communities by providing direct loans and loan guarantees to MFIs and industry support organizations that loan to MFIs. As the U.S. Government’s development finance institution, OPIC works to address major development challenges, and recognizes that limited access to finance – on the part of financial institutions and on the part of clients – presents a major hurdle to economic stability and growth.

One of OPIC’s microfinance partners is MCE Social Capital, a California-based non-profit. Powered by its guarantor model, and with a special commitment to empowering women, MCE makes loans to MFIs and organizations helping people living in poverty improve their lives.

MCE uses an approach whereby they recruit investors that share their same mission, foundations, and other entities to back loans to MCE from U.S. financial institutions, including OPIC and New Resource Bank (NRB). With each minimum guarantee unit of $1 million, MCE borrows $500,000 from OPIC and NRB. MCE never borrows more than 50 percent of the total value of its guarantees. MCE uses this pool of capital to fund loans to qualified MFIs and other financial providers that serve a high percentage of women, operate in rural communities, and offer health, education or business training programs in the developing world. Since MCE commenced operations in 2006, it has issued over $109 million in loans to more than 70 organizations. Each loan recipient – the vast majority of whom are women – supports an average of five family members and as a result of MCE’s partnerships with OPIC and other financial institutions has helped more than 1.9 million people in 35 countries – including Cambodia, Azerbaijan, and Sierra Leone, among others – across four continents.

With OPIC financing, MCE has been able to grow its portfolio to $38.9 million. OPIC has been one of MCE’s key partners, first providing a $15 million direct loan in 2012 and a second loan of $10 million in 2015. Through the years there have been countless examples of positive impact to those living in the developing world as a result of OPIC and MCE’s partnership.

Guarantee in Action

Oxus, in the Democratic Republic of the Congo (DRC), provides reliable financial services to the DRC’s working poor, serving over 20,000 borrowers (64 percent are women) and employing over 200 Congolese across its four branches. Oxus provides both individual and group loans, as well as financial education sessions about the product offerings and overall lending process. The sessions enhance transparency and help borrowers manage their loans, which are most often used as working capital or for the purchase of productive assets. Most of the borrowers use loans to support the small shops they operate, selling products as diverse as groceries, fabrics, or small tools and metal hardware.

With financing from Oxus, Henriette (pictured above) has expanded her stand in a large open air market in Kinshasa, where she sells fumbwa leaf stew, a dish made from hardboiled fumbwa greens and ground peanuts.

Over $61 million in MCE’s total loan portfolio has successfully matured. MCE’s historical default rate, by volume has been an impressive 0.62 percent. This in large part is due to their ability to implore a rigorous investment selection and portfolio monitoring process that reflects industry best practices and presents minimal risks to lenders.

The OPIC supported loans to Oxus and countless other MFIs continue to show the catalytic impact of loan guarantees to mobilize capital to generate economic opportunities for people in the developing world.

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