Microfinance Institution Loans

MicroCredit Enterprises makes loans to creditworthy, locally-run and locally-controlled microfinance programs. MicroCredit Enterprises is currently accepting loan applications and encourages eligible MFIs to apply.

MicroCredit Enterprises' loans to MFIs typically have a three-year term with fixed interest rates. The interest rate is negotiated on a case-by-case basis, but is frequently below commercial rates. A grace period on principal payments is offered to provide the MFI sufficient time to issue loans to poor entrepreneurs in distant villages and generate cash flow.

MicroCredit Enterprises offers microfinance institutions (MFIs) loans in local currencies wherever feasible. Under this plan MFIs applying for MicroCredit Enterprises’ debt capital are now afforded both a local currency option and US dollar denominated loan option. By tendering two options to MFIs, the currently hidden FX risk is a transparent, differentially priced risk with each MFI selecting its preferred option. For the complete policy statement, see Foreign Currency Risk Policy Statement.

Lending Policies

The most important way for MicroCredit Enterprises to maximize the impact of our anti-poverty work and protect our Guarantors is to target MFIs serving very poor client-borrowers, while avoiding inferior loans. To this effect, MicroCredit Enterprises' lending policies are:

• Deeply-impoverished women struggling on just $1.00 a day and residing in isolated rural communities are the preferred client-borrowers and micro-entrepreneurs which MicroCredit Enterprises seeks to serve with its loans to MFIs.
  
• Special consideration is given to MFIs that are able to the use the MicroCredit Enterprises loan to increase the number of poor clients served or who operate comprehensive social service programs, such as women's empowerment, health education or business training for micro-entrepreneurs.
  
• Because local people can best decide priorities and meet local challenges for themselves, loans are to MFIs with reliable management and accountable boards of directors who respond to local community needs.
  
• Loans are made to financially sustainable MFIs or in some cases to MFIs that are successfully executing business plans leading to operational self-sufficiency.
  
• MFI loan applicants with a track record of lowering interest rates to impoverished client-borrowers or those who will use the MicroCredit Enterprises loan proceeds to lower interest rates to poor client-borrowers are ranked more favorably by MicroCredit Enterprises.
  
• Microcredit Enterprises employs three levels of loan portfolio diversification in order to mitigate risk. One, loans to MFIs are diversified across countries and geographic regions. Two, loans are made across a wide range of MFI legal structures, including, but not limited to, non-profits, credit unions, regulated and unregulated financial institutions, and more. Three, each MFI's underlying loan portfolio is diversified among thousands of individual microcredit loans.
  
• Microcredit Enterprises appreciates that it is wise to avoid "over-capitalizing" MFIs that do not have the capacity or experience to grow rapidly or service a large microcredit loan portfolio. Sustainability and viability is achieved faster and more reliably by lending cautiously and carefully.
  
• MicroCredit Enterprises does not make overseas charitable donations, operate humanitarian relief programs or engage in advocacy or political work. MicroCredit Enterprises does not make loans to governments or government-operated programs.

Due Diligence Criteria

MicroCredit Enterprises assesses four basic factors to evaluate the creditworthiness of an MFI: (a) quality and integrity of the management and board of directors; (b) quality of the MFI's loan portfolio; (c) MFI's financial performance and prospects for growth; and, (d) the stability of the political, economic, and legal environment of the country.

MicroCredit Enterprises requires MFI loan applicants to provide the following information and comply with the following criteria:

• Serves at least 5,000 borrowers or has a minimum $1,000,000 gross loan portfolio
  
• Portfolio-at-risk (i.e., outstanding balance of all loans with payments in arrears beyond 30 days) cannot exceed 10%
  
• Independent audit reports covering at least the two most recent years
  
• Business plan with three years of financial projections
  
• Credit rating report or other similar external evaluation/recommendation
  
• Operationally self-sufficient or demonstrate a clear plan to achieve operational self-sufficiency
  
• Financial and operational profile at The MIX Market the microfinance industry's clearinghouse for standardized information about the financial strength and performance of MFIs
  
• The requested loan will not exceed thirty-five percent of the MFI's total outstanding loan portfolio

MFI Loan Application Procedure

If an MFI fulfills the eligibility criteria listed above, it should complete and submit an MFI Loan Application or Solicitud de Préstamo a una IMF or Demande de prét IMF and be prepared to sign the Credit Agreement for Microfinance Institutions after the financial terms have been negotiated. Approved MFI loans are funded four times per year.

MFI loan applications are approved or rejected by the MicroCredit Enterprises Loan Committee, a majority of whom are MicroCredit Enterprises Guarantors. To improve the deliberations of the Loan Committee and to foster greater collaboration among MFI lenders, the chief executive officers of the Dignity Fund and the Katalysis Bootstrap Fund serve as ex officio Advisers.

Questions about the loan application process, the status of pending loan applications and all related matters should be addressed to: Kyle R. Salyer, Executive Vice President, Portfolio Management.