Microfinance and Impact Investing: the Legacy of the Bridge Fund
Declare victory and go home.
How often do you get to say that?
But that’s exactly what we did a few weeks ago when we celebrated the closing down of the Accion Bridge Fund. Why a celebration? As the first guarantee fund to support the growth of microfinance institutions, it achieved its objective which was to open doors to private bank funding. This was 1984; microfinance was in its early days and was the purview of small NGOs which had little to no experience with banks. What they did have was deep experience with microlending and bold ambitions to scale this lending. Funding above and beyond grants would be needed.
The Bridge Fund – originally called the Latin America Bridge Fund – was a pioneering breakthrough for Accion and for the industry. By providing a partial guarantee in the form of a letter of credit to local financial institutions, Accion’s network partners were able to grow their portfolios and establish relationships with the formal financial sector of their respective countries. As they gained experience and credibility, MFIs were able to leverage the guarantees to achieve funding multiple times the nominal amount of the guarantee.
Such well known leaders in financial inclusion as Bancosol and Mibanco received early support from the Bridge Fund. Accion’s partners in Paraguay and Chile were able to grow and thrive because Bridge Fund guarantees facilitated funding that they could not obtain from multilateral sources due to their political regimes. Over time the Bridge Fund grew to approximately US $6 million and provided guarantees to 40 MFIs in 15 countries around the world.
The real pioneers, though, are the individuals and institutions that provided the initial capital and then continued to support the Bridge Fund throughout its 32 year history. Religious women such as Sisters of St. Francis of Tiffin, Ohio, and Sisters of St. Joseph of Carondelet, St. Louis Province, committed their scarce resources and time to learn about, invest in, and spread the word about the Bridge Fund and its impact. Their early support was catalytic in bringing on board individual investors through our relationships with socially responsible asset managers and trustee firms such as Trillium Asset Management, U.S. Trust, and Loring, Wolcott and Coolidge. Those relationships have lasted three decades through difficult economic times, periods of portfolio delinquency, and institutional turmoil. We are proud to say that no lender ever lost money during the life of the fund.
The Accion Bridge Fund benefited greatly from strong support from the U.S. Agency for International Development (USAID) and from the Ford Foundation which granted its first international Program Related Investment (PRI) to the Bridge Fund. Those funds were used as a form of philanthropic capital to achieve a blended lower cost of funds which facilitated greater outreach and impact. What kind of impact? We have the numbers. During its lifetime, Bridge Fund guarantees facilitated the issuance of over US $116 million in letters of credit by Citibank to local financial institutions which, in turn, lent approximately US $233 million to MFIs. Assuming an average loan of US $1,100, approximately 210,000 clients were served. For many MFIs, the Bridge Fund guarantee represented a first step on the path to commercialization and eventual transformation to becoming banks themselves.
We are proud of the accomplishments of the Accion Bridge Fund and the pioneering path it forged in facilitating access to the capital markets. Building on the Bridge Fund experience, in the decade of the nineties, Accion began to engage in new capital market efforts such as securitization and equity investments. As we say farewell after 32 years, we want history to remember this very early “impact investment” and to recognize those dedicated individuals and institutions that paved the way for the thriving impact investing industry of today.
This post originally appeared on the Center for Financial Inclusion blog.