Asian Devel­op­ment Bank ap­proves $250m for MRPP

The Pak Banker - - Company& -

IS­LAM­ABAD: The Asian Devel­op­ment Bank's (ADB) Board of Di­rec­tors has ap­proved a Mi­cro­fi­nance Risk Par­tic­i­pa­tion Pro­gramme (MRPP), mark­ing ADB's first large scale pri­vate sec­tor mi­cro­fi­nance ini­tia­tive.

A state­ment is­sued by the Bank on Mon­day said that pro­gram will al­low Asian Devel­op­ment Bank to part­ner with fi­nan­cial in­sti­tu­tions that ac­tively lend to mi­cro­fi­nance in­sti­tu­tions (MFIs) in ADB's de­vel­op­ing mem­ber coun­tries and to share the de­fault risk on un­der­ly­ing mi­cro­fi­nance in­sti­tu­tions loans.

The pro­posed pro­gram will sup­port the ex­pan­sion of lend­ing to mi­cro­fi­nance in­sti­tu­tions, in turn en­abling in­creased pro­vi­sion of fi­nan­cial ser­vices to the un­de­served.

This will help ad­dress the sig­nif­i­cant un­met de­mand from the poor for fi­nan­cial ser­vices, and pro­vide ad­di­tional fund­ing for mi­cro-bor­row­ers. Un­der the terms of the pro­gram, ADB will typ­i­cally as­sume up to 50 per cent of the de­fault risk on loans made to MFIs, in ag­gre­gate up to a max­i­mum of $250 mil­lion.

Di­rec­tor Gen­eral ADB's Pri­vate Sec­tor Op­er­a­tions Depart­ment Philip Erquiaga said that mi­cro­cre­dit has been shown to play an im­por­tant role in pro­vid­ing seed money for busi­nesses and im­prov­ing the lives of the poor.

"This pro­gram will al­low mi­cro­fi­nance in­sti­tu­tions to ex­pand lend­ing to seg­ments of the pop­u­la­tion who cur­rently lack ac­cess to funds", he added.

He said that mi­cro­fi­nance in­dus­try has boomed in re­cent years with Asian in­sti­tu­tions es­ti­mated to have over 47 mil­lion bor­row­ers as of the end of 2008, with out­stand­ing loans of over $10 bil­lion.

De­mand is enor­mous, with as many as 600 mil­lion to 1 bil­lion poor work­ers world­wide need­ing ser­vices, in­clud­ing a large num­ber in Asia and the Pa­cific, home to two-thirds of the world's poor, he added.

Mi­cro­fi­nance busi­nesses seek­ing to serve this mar­ket are ham­pered by limited ac­cess to fi­nance from banks, ex­change rate is­sues, and other bar­ri­ers.

The risk shar­ing ar­range­ment, pro­posed by Asian Devel­op­ment Bank to a range of in­ter­na­tional and lo­cal fi­nan­cial in­sti­tu­tions, will al­low these par­tic­i­pants to boost loans to mi­cro­fi­nance in­sti­tu­tions, which in turn will re­sult in scaled up as­sis­tance to groups cur­rently un­able to ac­cess funds, such as poor house­holds, women and cash­strapped small en­ter­prises, he added.

Mr. Erquiaga said that un­der this ar­range­ment, com­mer­cial fi­nan­cial in­sti­tu­tions which are de­vel­op­ing mi­cro­fi­nance op­er­a­tions will be able to achieve greater lend­ing scale with­out overex­tend­ing their risk ex­po­sure.

He fur­ther said that ADB's risk sup­port will en­able par­tic­i­pat­ing in­sti­tu­tions to build up their mi­cro­fi­nance lend­ing op­er­a­tions, which will help ex­tend the reach of the com­mer­cial mi­cro­fi­nance sec­tor as a whole, and con­trib­ute to the devel­op­ment of the pri­vate sec­tor.

Asian Devel­op­ment Bank has been a ma­jor sup­porter of the mi­cro­fi­nance and mi­croen­ter­prise sec­tor for al­most two decades with up to $1.9 bil­lion in ag­gre­gate as­sis­tance for ap­proved projects since 1988.

In 2009, it ap­proved a to­tal of $16.1 bil­lion in fi­nanc­ing op­er­a­tions through loans, grants, guar­an­tees, a trade fi­nance fa­cil­i­ta­tion pro­gram, eq­uity in­vest­ments, and tech­ni­cal as­sis­tance projects.

Asian Devel­op­ment Bank also mo­bi­lized co-fi­nanc­ing amount­ing to $3.2b. -PB News

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