In 2014, Deutsche Bank committed to launch a unique million debt financing program in direct lending to microfinance institutions worldwide from the bank's balance sheet.
Deutsche Bank will support microfinance institutions that have become important financial service providers to unbanked populations. The committed capital will be used to support the growth of microfinance institutions that pursue a high level of client care and transparency of operations. Deutsche Bank will invest its own capital and it will leverage its underwriting capabilities and knowledge of the global microfinance sector to deploy debt financing that has a far-reaching social impact. In addition to displaying solid financial performance, strong governance and effective controls, microfinance institutions to be funded should follow a clearly-defined social mission and incorporate social performance issues into their business operations. They should also be endorsers of the Smart Campaign, a global effort to unite microfinance leaders around keeping the sector client-focused, with plans to continue improvements in client protection practices.
The targeted institutions will have average loan sizes ranging from to ,000. In a single loan cycle, 48,000 borrowers will benefit from the debt funding that supports the portfolio growth. Of the 48,000 borrowers, 60 percent are women and over 80 percent are using the loans for SME / Microfinance purposes. The program is expected to provide funding up to 5 years. Assuming each loan cycle at 18 - 24 months, the funding is expected to benefit the total number of borrowers from two consecutive loan cycles. Therefore, the total number of borrowers expected to benefit during the five year period is 96,000. The estimated number of women borrowers is 60 percent of this total or 57,600, and the total number of people who will generate sustainable income through self-employment or new job opportunities is estimated at 78,000 or slightly over 80 percent of total borrowers.
To be partners in this commitment, microfinance institutions should use the funding to broaden their outreach to the unbanked, and to further widen and improve their product offerings to their client base. The objective of the debt financing is to fund portfolio growth of microfinance institutions selected on the basis of their demonstrated responsible lending practices, client-focused product development and high standards in customer service.
Deutsche Bank will work on this commitment according to the following schedule:
Q1 - Q2 2015: Term sheet negotiations with microfinance institutions
Q3 - Q4 2015: Due diligence and deal structuring
Q4 2015: Disbursement of million
2016: Disbursement of million
Based on its knowledge of the global microfinance sector, Deutsche Bank will reach out to microfinance institutions that match the desired profile and perform due diligence to verify that they meet the criteria described above. Deutsche Bank expects to have reached 50% of the targets set out below by 2016, and 100% by 2019.
Microfinance has been primarily funded by development financial institutions, social investors, and subsidized sources of capital. Since many microfinance institutions initiated operations as NGOs, their original sources of funding were primarily donations, government programs and development financial institutions. Over the years, the sector has grown to serve well over 100 million direct clients worldwide. Furthermore, a significant number of microfinance institutions have transformed into regulated financial institutions and expanded their product offerings to include a range of loan products to serve different client needs, as well as savings, insurance and remittances products. As microfinance has expanded and matured, its funding base has broadened to include a growing social investment sector and some local sources. While these funding providers have supported the microfinance sector in its evolution to date, Deutsche Bank seeks to recognize the level of maturity and excellence in service of some of the best providers of base of pyramid (BOP) financial services by delivering mainstream private capital to help reach more people in need of financial services and improving products to better serve those living in poverty. Providing access to mainstream global capital markets is a key step to ensuring that the microfinance sector continues to deepen and broaden its outreach.
Legal pro bono services for transaction execution.
By receiving financing from Deutsche Bank, microfinance institutions benefit from the credibility that comes from being a direct borrower of a global commercial bank. This recognition is expected to help open the doors of other mainstream private funding sources.