Linking MFIs to Commercial Financing in Latin America

This case study examines how the Inter-American Development Bank (IDB) helped Latin American MFIs tap formal financial markets in the 1990s through ProFund, a pioneering equity fund.

The study states that:

• Profund was born to meet the need of MFIs for commercial capital;
• IDB's Multilateral Investment Fund (MIF) incorporated Profund as for-profit, closed-end investment fund;
• ProFund's portfolio included equity and quasi-equity-debt to NGOs transforming into regulated MFIs.

The paper further cites:

• Challenges faced by Profund;
  • Confusion among different divisions of donor shareholders regarding investing;
  • No clear donor exit strategy.
• Lessons for other donors from IDB's experience with ProFund;
  • Careful evaluation of participation is essential;
  • Conflict of interest within donor agencies must be avoided;
  • Disbursement conditions must be avoided;
  • Good fund manager must be selected.
• Major Achievements of Profund:
  • Increased savings mobilization;
  • Operational self-sufficiency;
  • Remarkable internal rate of return.

The paper concludes that:

• ProFund is an example of how innovative donor support at the right time and place can build bridges between microfinance institutions and traditional financial markets;
• The ultimate success of ProFund is the diminishing role of donors in specialized funds in Latin America;
• Private investors in the region are waking up to microfinance.