ADB invests $2.5M in regional microfinance fund

The Asian Development Bank (ADB) is investing up to $2.5 million in a private equity fund to support regulated microfinance institutions and small business banks in poor areas of developing Asia where demand for financial services is high but remains underserved.

The fund, ShoreCap International Ltd., will invest in financial intermediaries serving micro and small enterprises in developing economies of Africa, Asia, and Eastern Europe. The fund expects to allocate up to half of its investment portfolio to Asia, with ADB’s investment targeted exclusively to that part of the portfolio.

Micro and small enterprises represent a major driver of business in developing countries. However, access to capital and financial services in these sectors is severely constrained.

According to an ADB Microfinance Development Strategy, some 180 million poor households in the Asian and Pacific region still have little access to formal financial services.

"Because of the large number of people employed by small businesses in developing countries, financing of this sector can be a major contributor to job creation," ADB Structured Finance specialist Tuyen Nguyen said. "Equally important, delivery of financing and financial services through commercialized and regulated microfinance institutions and small banks could help to deepen financial markets in developing regions of Asia in a sustainable manner."

The fund will be ADB’s first private sector investment targeting microfinance institutions, which tend to be informal and highly localized, hindering their ability to become more formalized or achieve growth.

Besides small banks and regulated microfinance institutions, the fund will support strong microfinance non-government organizations (NGOs) that are in an advanced stage of becoming regulated and commercial entities.

ShoreCap’s financial investments will be accompanied by capacity building from a parallel technical assistance facility, ShoreCap Exchange, and transfer of valuable knowledge and experience from the fund sponsor, ShoreBank.

Founded in 1973 and headquartered in Chicago, ShoreBank is a bank holding company with $1.4 billion in assets and a long-standing focus on community development finance in underserved areas of the US, and developing economies in Africa, Asia, and Eastern Europe.

The fund has a commitment period of five years and an expected term of 12 years after the first financial closing in September 2003, in which seven investors committed a total of $15.5 million. Other investors in the fund include ABN Amro, the International Finance Corp. (IFC), and ShoreBank.