Paper
Reality Check: Preparing MFIs for Commercial Capital – Are We Ready?
How can microfinance institutions make the transformation to commercial capital successfully?
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This progress note profiles the experiences of three microfinance institutions (MFIs) preparing to access commercial debt.
The cases in this progress note illustrate the preparation MFIs face in applying for commercial loans through banks, trust funds or other mechanisms. The three MFIs that the note studies are:
- In the beginning stages of financial integration;
- Categorized as tier 2 and tier 3 organizations;
- Young and unregulated.
The note studies the cases of:
- Grameen Foundation USA and Lift Above Poverty Organization (LAPO);
- World Vision and KADET;
- CHF International.
In each case it examines the organization's:
- Priorities, search for investors and approach;
- Terms of transaction and negotiating points for investors;
- Strategy for transitioning MFIs to commercial capital;
- Methods of developing interest with the investors.
The note presents the following conclusions:
- Management capacity and financial transparency are critical to investors;
- MFIs must be well-informed and capable of weighing the risk factors of a potential deal;
- MFIs need to understand the lender's perspective and learn to operate in this arena.
The note recommends that MFI managers pay special attention to the following themes: long-term capital, collateral constraints, relationship building, external ratings, currency risks, transformation and management capacity
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