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IFC and ACCION Promote Commercial Banks' Investment in Microfinance

31 January, 2005

IFC:
Georg Schmidt
Phone: +1 (202) 458-2934
Fax: +1 (202) 974-4384
Email: Gschmidt@ifc.org

Washington, D.C. and Boston, MA, January 31, 2005—The International Finance Corporation, the private sector arm of the World Bank Group, and ACCION International, a nonprofit organization and world pioneer in microfinance, are supporting the UN Year of Microcredit by funding a new initiative that will help commercial banks around the world offer financial services to the working poor. Based on a model that ACCION piloted in Haiti and Ecuador, the initiative will bring commercial banks into microfinance, leveraging their considerable financial resources and infrastructure to increase the number of people served significantly. IFC will invest $15 million and provide $5 million in grant funding to support the banks’ efforts to extend their reach into lower-income markets. IFC’s funding will be complemented by substantial investments from the participating banks.

Of the 2.8 billion poor around the world living on less than $2 a day, only 70 million have access to credit. The new IFC / ACCION initiative supports growth in the microfinance sector, which has historically consisted of smaller, unregulated institutions and NGOs whose reach is often limited by resources and infrastructure.

The cooperation with mainstream banks in the developing world will have a catalytic effect given their greater financial resources, their infrastructure to channel microcredit to large numbers of poor borrowers, as well as their strong human resources pools and market recognition. ACCION will help these banks overcome the substantial operational and cultural challenges they face in dealing with nontraditional clients and a high volume of very small transactions.

The initiative will build on a successful project model ACCION has pioneered in recent years with the largest commercial banks in two of the Western Hemisphere’s poorest nations, Ecuador and Haiti. In Ecuador, ACCION advised Banco del Pichincha on the creation of an independently managed affiliate, CREDIFE, that has built a microcredit loan portfolio from zero to $45 million since 1999. In Haiti, ACCION helped SOGEBANK launch a comparable microfinance institution, SogeSol, whose loan portfolio has risen from $150,000 in 2000 to approximately $6 million today. Both projects now reach a combined 41,000 low-income entrepreneurs.

Peter Woicke, Executive Vice President of IFC stated, “This initiative represents an important milestone for IFC. Over the past five years, we have committed significant resources to groundbreaking projects in microfinance. With this initiative, and with the strong support of ACCION, we will continue to push the frontier of microfinance toward the commercial mainstream, where it belongs.”

“The IFC’s vital support of microfinance, specifically through commercial institutions,” said ACCION president and CEO, Maria Otero, “will enable ACCION to build capacity quickly and efficiently, thereby providing economic opportunity to millions more poor entrepreneurs throughout the world.”

Over the last thirty years, the microfinance industry has expanded rapidly, mainly driven by the commercialization of specialized financial institutions that began as NGOs or donor-funded projects. ACCION and IFC have played key roles in moving the sector from subsidy dependence to a sustainable business model. Beginning with ACCION affiliate BancoSol in Bolivia in 1992, a growing number of microfinance institutions have transformed to regulated banks and become profitable. In addition, a number of small, specialized banks have been created for the purpose of funding microenterprises. IFC has become one of the largest investors in such microfinance activities with a worldwide microfinance portfolio of over $200 million.

About IFC
The mission of IFC (www.ifc.org) is to promote sustainable private sector investment in emerging markets, helping to reduce poverty and improve people’s lives. IFC finances private sector investments in transition and developing countries, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY04, IFC has committed more than $44 billion of its own funds and arranged $23 billion in syndications for 3,143 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY04 was $17.9 billion for its own account and $5.5 billion held for participants in loan syndications.

About ACCION International
ACCION International is a private, nonprofit organization with the mission of giving people the financial tools they need – microenterprise loans, business training, and other financial services – to work their way out of poverty. A world pioneer in microfinance, ACCION International issued the first microloan in 1973 in Brazil. ACCION International’s partner microfinance institutions today are providing loans as low as $100 to poor women and men entrepreneurs in 20 countries in Latin America, the Caribbean and sub-Saharan Africa, and in more than 33 U.S. cities and towns. In the past decade, ACCION and its partners have disbursed $5.8 billion in microloans to more than 3.2 million borrowers, 65 percent of whom are women. Ninety-seven percent of these loans have been repaid. For the past two years, ACCION has been among 25 organizations awarded the 2005 Social Capitalist Award by Fast Company magazine for “using business excellence to engineer social change.” For more information, visit www.accion.org.

http://ifcln001.worldbank.org/ifcext/pressroom/ifcpressroom.nsf/
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