Microfinance

Microfinance Heats up in East Africa

With BRAC’s (Bangladesh Rural Advancement Committee) recent announcement of their successful raise of $62M for their Africa Loan Fund, a new benchmark/milestone has been reached for the potential growth in microfinance in East Africa. For the underdeveloped East Africa microfinance market, this is a huge amount of commercial debt capital to support BRAC’s ambitious goal of reaching 700,000 microfinance clients (families) in Tanzania, Uganda and Southern Sudan.

BRAC is a microfinance NGO based in Bangladesh which has recently started expanding their presence outside of their home country to other regional markets including Pakistan, Afghanistan, Sri Lanka and a number of sub-Saharan Africa countries. They position themselves as the “world’s largest private human development organization” (mainly based on the number of employees they have in Bangladesh microfinance operations) and leading a new kind of development effort … a southern hemisphere organization serving another southern hemisphere developing market. BRAC has been much more aggressive in expanding beyond its home borders than the much more famous Bangladeshi microfinance bank, Grameen Bank, which in 2006 jointly received the Nobel Peace Prize.

It is interesting to note that they have raised this fund in US$, but they apparently plan to make loans to country-specific BRAC MFI subsidiaries in local currency. If this is true, then the fund is going to take considerable currency risk, so they are going to have to pass on that cost in the form of higher interest rates to the MFIs. It has generally been prohibitively expensive to hedge currency transactions into most Africa countries, so someone has to “self-insure” the risk.

Please add comments with any more insights or comments you have on this transaction.

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