Microfinance Enhancement Facility receives €40m from KfW
The Microfinance Enhancement Facility (MEF) has announced €40 million of additional first loss capital provided by KfW (the German Development Bank), acting on behalf of the German Federal Ministry of Economic Cooperation and Development (BMZ), paid in on 28 December 2020. These resources will strengthen the MEF’s capital structure and increase protection to senior investors from the potential financial impact of loan losses. They will also increase the fund’s potential to leverage additional private sector capital.
Since its launch in 2009, MEF has grown to manage a high-quality global portfolio of $579 million as of September 2020. The fund was initially conceived as a blended public-private structure to provide liquidity to microfinance institutions in the wake of the global financial crisis. The Covid-19 crisis has renewed the importance of the MEF as a crisis response vehicle. The fund continues to disburse much-needed liquidity to solvent portfolio companies whose borrowers have been hit hard by the Covid-19 crisis. BMZ funds will be leveraged by MEF to support over 100,000 Covid-19 affected clients of financial companies in emerging markets. These companies provide access to finance for productive purposes to individuals and small companies at the base of the economic pyramid. On-lending of BMZ resources will support an estimated 250,000 jobs in these markets. Moreover, this additional capital will allow the fund itself to maintain adequate risk limits which will support new relationships in higher risk Covid-19 affected economies.
This in turn will send an important signal of constancy both to the market itself and to MEF portfolio companies.
“The Covid-19 pandemic is exacting a heavy price on the economies of the poorest countries in the world. KfW (with support from the Federal German Ministry for Economic Cooperation and Development) is pleased to be able to provide additional first loss capital to the Microfinance Enhancement Facility, especially at this critical juncture, thus allowing the fund to further expand its business in support of microfinance markets in developing and emerging economies,” said Dr Jan Martin Witte, director global equity and funds at KfW Development Bank.
“We are very pleased to receive this valuable support from our long-time partner BMZ,” said Ihno Baumfalk, chairperson of the MEF board of directors. “As a crisis response vehicle, MEF relies on the structural risk enhancement provided by our key shareholders to attract further investors from other investor segments, including an increasingly large participation of private sector capital invested in Junior Shares and Notes.”
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