Grameen Foundation-USA Plays Catalytic Role to Bring Capital to the Industry

Janet McKinley, chairman of The Income Fund of America and Vice-Chair of GF-USA’s Program Committee, is enthusiastic about the potential for long-term impact on the industry: “I believe it will encourage more of these types of transactions that can play a strategic role in making microfinance more widely available to the world’s poorest communities.”

Under the agreement, ICICI Bank purchased $4.3 million of SHARE’s outstanding loan portfolio (similar to the way that car loans and home mortgages are resold). The $4.3 million received by SHARE will provide the capital needed to scale up its lending with 25,000 new female clients during the first quarter of 2004 (from 198,000 members as of December 31, 2003). The interest paid by SHARE through this deal is almost four percent less than the rate it typically pays on commercial loans. ICICI Bank will receive and process the payments made by SHARE’s borrowers, absorbing much of the data management duties and easing the flow of capital throughout the loan process. The term of the deal is one year, though SHARE expects to turn over new loan portfolios to ICICI Bank on an ongoing basis in similar arrangements.

This agreement makes good business sense for ICICI Bank, which can now access a hard-to-reach market through SHARE, an experienced microcredit lender. It also helps the bank meet its government-mandated target for lending to the microfinance sector (similar to those required under the Community Reinvestment Act in the U.S.)

GF-USA supplied the two essential elements necessary to reach agreement -- technical assistance and the collateral deposit of $325,000 that accounted for 93 percent of the guarantee required by ICICI Bank.

“What really transformed this innovative use of securitization into a reality was the strategic thinking and determination of all of the participants, grounded in the common goal of reducing poverty among India’s poorest people,” noted Alex Counts, president of GF-USA.
SHARE currently provides micro loans, usually no more than $100, and other financial services to more than 200,000 poor families in the Indian state of Andhra Pradesh (where approximately 45 percent of its 75 million citizens live in poverty) and neighboring Chattisgarh. Prior to this transaction, GF-USA provided SHARE with $322,000 in local currency-denominated loans to support its impressive 230 percent growth between 2001 and 2003. SHARE, following in the footsteps of Grameen Bank’s aggressive expansion in the late 1980s and 1990s, has a long-term goal of providing one million of India’s poorest with micro-finance services by 2007. Through innovative financing arrangements like this one, GF-USA is committed to helping SHARE reach its goals.

What’s Next for India?

India is a country where demand for microfinance services amongst the poor far exceeds supply. Fewer than 10 percent of India’s 75-80 million households that could make use of micro-finance have access to it. One of the greatest barriers is the industry’s lack of capital. GF-USA and ICICI Bank are now incorporating an India-based finance company, Grameen Capital India Pvt. Ltd., to structure similar securitization transactions to bring the much needed capital to Indian micro-finance institutions.

Robert Eichfeld, Chairman of GF-USA’s newly formed Capital Markets Committee and former head of Citibank’s South Asia and Middle East region sees a solution on the horizon: “Grameen Capital India Pvt. Ltd., will break through the capital constraint barrier that has prevented the sector from growing as quickly as it is otherwise capable.”

For more information about GF-USA’s work in India, contact Julie Stahl at: jstahl@gfusa.org

D. Ellevva and her husband Durgiah live in a small, dusty village about 60 miles north of the central Indian city of Hyderabad. In a region where the poorest often hire themselves out as day laborers for a pittance (20 rupees (less than 50 cents) per day for a woman, 40 rs for a man), D. Ellevva had little hope of escaping this grinding poverty. Until, that is, a local branch of SHARE Microfin Ltd. started a center in her village. D. Ellevva formed a group with four other women to become eligible for a loan of 5000 rs, which she used to purchase a buffalo. The buffalo gave birth to a calf and now provides milk that D. Ellevva can sell. A second loan of 3000 rs allowed her to buy two goats and vegetables to resell in the local market. Though still in her first year of borrowing, D. Ellevva can see the changes micro-credit has brought to her life: “I am very happy to have taken a loan,” she says. “Now I am in business for myself and get regular income, and don’t have to work as a laborer any more.” She doesn’t plan to stop there, however. With her next loan she hopes to purchase another buffalo or perhaps a bore well to irrigate the crops her husband tends, growing her business and her income in the process.