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Microfinance: Stan Chart and IFC free MFIs

Standard Chartered and the International Finance Corporation have joined forces to launch the first-ever issuance of credit-linked notes backed by loans to microfinance institutions (MFIs) in sub-Saharan Africa and South Asia.

Peter Sands, Standard Chartered:

Peter Sands, Standard Chartered: unlocking funding for microfinance

As the private sector arm of the World Bank, the IFC is investing $45 million in the notes – a basic credit derivative with an embedded default swap, allowing the issuer to transfer credit risk to investors. The notes will be issued by Microfinance Institutional Loans for Asia and Africa, or MILAA, a special-purpose vehicle set up by Standard Chartered to facilitate microfinance lending.

Vibhuti Sharma, global head of development organizations at the London-headquartered lender, says it only offers microfinance loans in markets where it is either strategically strong – notably in Africa and Asia, two markets that provide most of its earnings – or where it can offer loans in the local currency. "These are the poorest of the poor in these markets, and we are working to ensure they are not exposed to forex risk or asset liability risk," says Sharma.

He admits that these turbulent global times aren’t the easiest in which to offer investors new credit structures backed by loans in high-risk markets. "The markets are challenging at this time, but we are confident that this transaction will be successful.