Different needs, different instruments
The member organizations of NpM offer a wide variety of instruments to support inclusive finance. These instruments include:
- Short and long term loans to finance loan portfolio, expansion and sometimes running costs;
- Equity investments in microfinance institutions (MFIs);
- Guarantees to enable organizations to attract national and international funding;
- Seed capital to start up new MFIs; and
- Grants for technical assistance, investments and research.
The appropriate instrument for an MFI is determined by its developing stage and the focus of the platform member involved. The diversity in instruments and expertise of the NpM members enables them to support MFIs according to their needs.
Explanation of the instruments
- Grants are an important instrument for beginning and upcoming MFIs to improve their maturity and professionalism. They are also important in funding innovation for specific products or attending new market segments. The final aim is that MFIs can operate independently and attract their own funds.
- Guarantees are provided to serve as a channel between an investor and an MFI that would otherwise have limited access to financing its loan portfolio. Guarantees are intended to stimulate lending to market segments that are considered risky.
- Debt financing instruments in the microfinance sector are mainly provided for ‘on-lending to clients’ meaning that these loans for MFIs are intended to provide credit to their customers.
- As MFIs grow and want to provide more loans, they need equity, or own capital, to remain at a healthy solvency level.
For more information on these types of instruments and analyses of the Dutch contribution to the microfinance sector, the publication ‘A Billion to Gain’ offers insightful analyses.