Skip to main content

Guarantees for microfinance: Impact and lessons learned

The full text article is not available for purchase.

The publisher only permits individual articles to be downloaded by subscribers.

Abstract:

One key challenge facing microfinance institutions (MFIs) is their inability to access sufficient financing – especially in local currency, which mitigates foreign exchange risk. Most MFIs are unable to meet their funding needs by mobilizing deposits alone, while local banks have varying appetites for lending to MFIs. Strategically using guarantees can open up local markets and, over time, reduce the amounts required as local banks become more comfortable. Between 2006 and 2010, the proportion of total MFI hard currency financing decreased from 86 per cent to 69 per cent – a positive trend that needs to continue. In 2005, Grameen Foundation launched one of the few loan guarantee programmes dedicated solely to local currency financing. To date, it has helped generate over US$188 m in financing through $54 m in guarantees, without any defaults. This article discusses lessons learned; the role of guarantees in MFI capital raising; and the overall impact on both MFIs and commercial lenders.

Keywords: FINANCE; FOREIGN EXCHANGE RISK MITIGATION; GUARANTEES; LOCAL CURRENCY; MICROFINANCE

Document Type: Research Article

DOI: http://dx.doi.org/10.3362/1755-1986.2011.034

Publication date: December 1, 2011

papub/edm/2011/00000022/00000004/art00006
dcterms_title,dcterms_description,pub_keyword
6
5
20
40
5

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
X
Cookie Policy
ingentaconnect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more