Bridging the Financing Gap: ACCION’s Experience with Guarantee Funds for Microfinance Institutions

Guarantee funds are financial instruments designed to promote commercial lending to populations or sectors, such as microfinance, where access to credit has traditionally been a challenge. This paper suggests the record for guarantee funds for microfinance has been mixed. Investment strategy, sources of capitalisation, risk management procedures and general macroeconomic conditions have all contributed to the success or failure of these funds.

This paper analyses ACCION’s experience with its guarantee fund, the Latin American Bridge Fund. It addresses the factors that helped or hindered its success and discusses the factors that led ACCION to revise the original Bridge Fund concept and create the new Global Bridge Fund in 2005.

In January 2005, ACCION International launched the Global Bridge Fund. The Global Bridge Fund plays a role similar to its Latin American Bridge Fund but on a wider and more flexible basis. The Global Bridge Fund guarantees not only short-term lines of credit but also the issuance, by microfinance institutions, of short-term fixed-income instruments. It is also available to institutions who are not affiliates or partners of ACCION.

Among the questions this report aims to address are: how well the Bridge Funds helped microfinance institutions access commercial capital, the sustainability of the Fund itself and the returns the Fund has provided investors.

The paper begins by setting out the objectives of guarantee funds, including a glossary of some key terms. It then sets out more specifically how ACCION’s guarantee funds operate and covers areas such as financial viability, how investors in the guarantee funds have fared and key design factors. It concludes with a discussion about the creation of the Global Bridge Fund.

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