Building a Reliable MFI Funding Base: Donor Flexibility Shows Results

This paper presents the case study of an Indian microfinance institution (MFI), BASIX, to explain how donor flexibility enabled it to secure the mix of capital required for long-term growth and to build a diverse and reliable funding base.

The paper cites some of the key problems faced by donors as well the MFI:

• Donor grants often could not be accepted by BASIX due to legal or tax considerations;
• Donors were unaccustomed to working with a finance company or a limited-powers bank;
• Negotiations involving diverse institutions were complicated and funding was delayed in several cases for a year or more.

Some of the key flexibilities presented in the paper are:

• Donors tailored their funding to support the institutional vision and strategy of BASIX;
• Donors recognized the value of the BASIX strategy of using a variety of financial instruments simultaneously;
• Different funders took the time to learn about one another's constraints and capabilities;
• The access of BASIX in attracting many new and different funders diminished the relative financial importance of its original donors.

The author presents the benefits to BAISX and its clients:

• Financial evolution of BASIX has been smooth;
• Clients can rely on a stable institution;
• Governance of BASIX combines different perspectives and expertise, enabling it to be a strong financial intermediary committed to social goals.