IDB fund provides emergency liquidity facility for microfinance institutions

Dec 2008
Washington D.C., United States, December, 22 2008 - The Multilateral Investment Fund (MIF) will provide up to $20 million in financing to the Emergency Liquidity Facility (ELF) to help Latin American and Caribbean microfinance institutions weather economic crises and natural disasters, the Inter-American Development Bank announced today.

The MIF, an autonomous fund administered by the IDB, approved a $16 million line of credit and a $4 million subordinated loan for ELF, which was established in 2004 to address the need of a lender-of-last-resort for this region’s microfinance industry

Unlike large banks, which can usually tap government-sponsored emergency loans to overcome liquidity shortages, microlenders are exposed to severe disruptions during crises.

"This financing is particularly timely because it will provide ELF additional resources to deal with the potential fallout from the global credit crisis," said MIF principal investment specialist Sandra Darville.

ELF’s short-term financing allows otherwise solvent microlenders to meet sudden spikes in credit demand or bridge temporary arrears in repayments during crises. To qualify for assistance, microfinance institutions must comply with strict criteria concerning solvency ratios, management, governance and transparency.

The facility also provides its clients technical assistance to strengthen their administration, risk management and contingency planning capabilities, preparing them to resume operations quickly after emergencies.

So far ELF has prequalified 51 microlenders in 13 countries with an aggregate loan portfolio of $4.3 billion. In its first four years of operations the facility has disbursed a total $10 million through 12 operations triggered by political unrest, hurricanes, floods, an earthquake and a volcanic eruption.

The MIF was one of ELF’s founding shareholders, along with Switzerland’s Secretariat for Economic Affairs, the Gray Ghost Microfinance Fund, the Calvert Foundation, ACCION International, the Canadian NGO Calmeadow, the Swiss NGO Argidius, and Costa Rican fund management company Omtrix.

ELF, which operates out of San Jose, Costa Rica, initially received some $9.7 million in financing from shareholders and other agencies including the U.S. Overseas Private Investment Corporation, the Spanish Agency for International Development Cooperation (AECID), Oikocredit of the Netherlands and the Soros Economic Development Fund.

Several international agencies, including AECID and Corporacion Andina de Fomento, have expressed interest in offering ELF additional financing.

Source : IADB

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