BIO has provided a USD 6 M loan to Locfund Next, an open-ended fund providing local currency financing to MFIs in the LAC region.
Type of investment
- Private sector consolidation/innovation
- Financial inclusion
Investment Companies & Funds
Financial Institutions Fund
More investments in
- Equity € 3,360,000.00 (2020)
Locfund Next is an open-ended fund with the aim to provide local currency financing to Tier II and Tier III Microfinance Institutions (MFIs) in Latin America and the Caribbean (LAC). The fund will build on the experience gained in two closed-ended predecessor debt funds, Locfund I (2007) and Locfund II (2013), in which BIO participated both as equity and debt investor. With this new fund, the manager seeks to continue serving Microfinance Institutions in the LAC region by offering local currency loans, other financial products and technical assistance.
The previous funds have played an important role in supporting financial inclusion in Latin America. BIO has a good and longstanding relationship with the sponsor, BIM, who has served as a reliable partner in the region.
Locfund’s approach stands out with local currency finance being at the core of their strategy, using a welldeveloped currency diversification model and market knowledge instead of hedging solutions. In some cases, hedging at the requested tenor is simply not available, making Locfund one of the only players providing local currency loans.
Private sector consolidation/innovation
The fund will help to meet the MFIs' demand for local currency finance, and will offer additional instruments that help to increase MFIs' access to finance, with a focus on female and rural end clients.
Through an investment in Locfund Next, BIO will support one of the few local fund managers in the microfinance space and will help them to establish a permanent vehicle with the potential to become one of the major Microfinance Investment Vehicles (MIVs) in the region.
The manager has a deep knowledge of the microfinance industry and helps to develop and formalize their investees. One key component of Locfund Next is the Digital Transformation of investees, which will be supported by a diagnosis of the MFI's current development stage, strategy development through TA, and potentially, at a later stage, funding of capex related to the digital transformation.
Locfund Next will provide local currency loans and other forms of financing to Tier II and Tier III MFIs, which are expected to provide average loans of around $ 1000 to individuals and micro-entrepreneurs, with a focus on female and rural clients. Depending on their sophistication, the supported MFIs will potentially provide other financial services, such as savings and payment services to their clients.
The fund targets at least 50% of the loan portfolio to be directed to female end clients