in the know Microfinance: Building Domestic Markets in Developing Countries

“Citi’s biggest contribution, though, is its belief that microfinance can become a valid, profit making business. If it is right, the other big will also pile into the market — and so will investors.” “A Survey of Microfinance”, The Economist, November 2005

By Robert Annibale

Expanding Access To Financial Services The Citigroup Microfinance Group works across Citigroup’s Long associated primarily with phi- businesses, product groups and lanthropy, leading microfinance institutions geographies to provide leading are demonstrating that they are sustainable microfinance institutions and and scalable providers of financial services their clients with financing, capital to poor and underserved communities, markets, transaction services, attracting the interest of a wider spectrum hedging, savings, of investors — including banks, specialized and products. One funds and even technology billionaires. of the businesses that has led in supporting this initiative is Many date the beginning of the micro- Citigroup’s Export Agency Finance finance movement back to 1976, when Group (EAF), which works with , founder of Grameen all leading bilateral and multi- in , started making small to lateral development agencies and the poor without any collateral — because no Citigroup’s country businesses one else would. In 2006, Yunus was awarded to structure creative financing with the Nobel Peace Prize for his innovation for microfinance institutions. The — expanding access to financial services to largest program with such an individuals and communities outside the agency was announced late last reach of traditional financial institutions. year — a $100mm Citigroup global micro- editors of Latin Finance with their Structured finance local currency medium-term facility Deal of the Year Award. Microfinance institutions (MFIs) operate by with a risk participation by the Overseas means of a range of legal vehicles, including Private Investment Corporation (OPIC). In September 2005, Citigroup/Banamex banks, non-bank financial institutions, This program will support the expansion of concluded the second tranche of this $50 NGOs, , etc. Most MFIs micro- local financing relationships by Citigroup million local currency structured bond for portfolios have excellent performance branches with leading microfinance Financiera Compartamos, Mexico’s leading histories, usually outperforming local institutions around the world. microfinance initiative, with more than mainstream consumer portfolios. 600,000 clients, mostly self-employed “Citigroup is well aware of the need to focus rural women. (Compartamos, “lets share” Innovation Led By Citigroup on building domestic markets in developing in Spanish, is ’s biggest countries,“ says Elizabeth Littlefield, the provider of microfinance.) The issue, In his 2005 letter to Citigroup share- chief executive of the Consultative Group structured with a partial credit enhancement holders, Citigroup Chairman Chuck Prince to Assist the Poor, a consortium of from the IFC (), was more highlighted the launch of the Citigroup development agencies affiliated with the than three times oversubscribed by Microfinance Group as an initiative to World Bank. “That is absolutely the right Mexican institutional investors, opening accelerate and expand the scale and scope thing to be doing.” a tremendous investor base for future of financial access in many countries. growth at a significantly reduced cost to Building on Citigroup’s 40-year history Following the first local currency private the issuer. The five-year investment grade of philanthropic support to microfinance, placement for a microfinance institution bond was designed to support the rapid the Citigroup Microfinance Group works in Mexico, Banamex and EAF launched an growth in micro-loans by Compartamos. with our businesses to develop com- innovative capital markets structure, the This deal established an important capital mercial relationships with microfinance first credit enhanced investment grade markets benchmark for the microfinance institutions, investors and networks as bond issued by a microfinance institution in sector globally. Banamex also provides clients and partners. Mexico in 2004, which was honored by the cash management to Compartamos and

insights | 2006 Issue 4 49 in the know

appreciated by BRAC and our partners. (It has) set a benchmark for the securitization market that will undoubtedly be replicated in the future to help more microentrepreneurs realize their dreams,” says Annibale.

In 2006, Citigroup’s Credit Risk Policies were expanded to include a wide range of microfinance institutions and a Microfinance Seguros Banamex developed and currently bank in… (microfinance) is Citigroup. It Assessment and Debt Rating Model was provides life insurance to over 500,000 of does not deal with individual microfinance introduced. These actions have accelerated Compartamos’ clients that have never been customers, but has already established and enabled Citigroup’s Corporate and insured before. relationships with microfinance institutions Investment Banking businesses to work in 20 countries and thinks the number could with many more microfinance institutions as Other financing transactions in developing soon grow to 30.” clients and partners. countries include a ten-year facility to ProCredit Holdings (a Frankfurt based Citigroup Microfinance was also honored Citigroup’s Global Consumer Bank in network of 19 microfinance banks), as by the Financial Times (FT) with the FT recently launched an innovative micro- well as arranging the first local currency Sustainable Deal of the Year Award in June savings product called Citibank Pragati syndication done in Romania to any 2006. Following the first tranche of this (“progress” in Hindi) which was highlighted borrower for ProCredit. Microfinance deal, the FT editors wrote that Citigroup on the front page of the Financial Times as institutions are increasingly working with microfinance team’s involvement “…helps leveraging technology to expand access Citigroup’s Global Transaction Services Mexico’s economic policymakers fulfill one of to savings to the unbanked. It utilizes a (GTS) and Treasury businesses as our their most pressing goals — to bring financial biometric ATM, that can identify customers relationship with the sector deepens. services to the nation’s poor.” not only by a card and pin, but also by their Citigroup’s Global Wealth Management fingerprints, and it displays and speaks to business is now the banker to a number In 2006, The Asset, CFO Asia and IFR Asia, customers in up to six languages, and these of the leading microfinance investment three of Asia’s leading financial magazines, ATMs are located in microfinance partner funds and networks, and it is working honored a Citigroup arranged, with institutions offices. The Consumer Bank with Citigroup Alternative Investments FMO (Netherlands) and KFW (), is also providing financing to individual on developing investment opportunities microfinance transaction for BRAC. This microfinance borrowers by working with for clients interested in co-investing with landmark deal brought the global financial leading microfinance institutions as Citigroup in the microfinance sector. markets to the doorsteps of nearly 1.2 million originators and servicers of such loans. households in Bangladesh. CFO Asia named Citigroup has been developing new the six-year US$180 million equivalent “There’s an enormous need and a partnerships to expand its ability to offer program as “one of its outstanding deals tremendous opportunity to provide services clients safe, fast and lower cost for 2006,” as it was the world’s first AAA to people — credit, but also insurance and services, such as the partnership between rated local currency securitization of savings,” concludes Annibale, “I hope one Citibank (in the U.S.) and Banco Solidario microcredit receivables and marks the first day we’ll reach as clients many of today’s (in Ecuador). “Remittances are more than time a capital markets deal from Bangladesh unbanked people.” a transfer, they link families who are often has picked up such accolades from the our customers,” states Bob Annibale, global financial media. The Microfinance Group works with and director of Citigroup’s Microfinance Group. across geographies, businesses and product BRAC is the world’s largest national NGO, groups, with all risk, products and revenue An Enormous Need, with over five million borrowers (mostly remaining in the respective businesses. If A Tremendous Opportunity women). About 65% of its loans are for the you would like to discuss opportunities with Citigroup’s efforts have attracted attention, extremely poor who borrow from US$50 microfinance, please contact Bob Annibale as seen in the November 2005 issue of to US$100. “The recognition from the at [email protected] or in The Economist: “The most ambitious big financial media for this transaction is most London on 44-20-7986-6380.

50