FINCA International - Funding

Funding

Nearly all FINCA programs begin as nonprofit institutions rather than regulated commercial finance institutions. As such they can not legally collect the savings of their clients for financing their loan portfolio (as a conventional bank would do). Thus, FINCA usually finances its start-up programs with grants or soft loans. FINCA estimates that for a typical country program to reach its break-even point requires (1) three years, (2) a minimum of 7,000 clients, and (3) about $2 million in funding—where half is for loan capital and the other half subsidizes a declining share of its operating costs over a period of three years. Historically, FINCA has raised most of this start-up money from USAID. But in recent years, FINCA has financed an increasing share of its program start-up costs from private sector donors (corporations, foundations, and individuals). Once a FINCA program reaches break-even it can continue to grow its portfolio by re-investing its net operating surplus. It also becomes “bankable”, i.e. eligible to borrow from local commercial banks for re-lending to its clients. These loans are guaranteed by means of a dollar-denominated letter of credit from FINCA International’s Village Bank Capital Fund (VBCF). Today some 20% of FINCA’s global lending is financed by borrowed capital from host-country commercial banks.