DANIDA has recently funded a study done Development Associates on the possibilities of funding a Global Guarantee fund for microfinance. Very interesting, because it highlights the important debate on how donors best can support the sector. The guarantee funds is an attempt to overcome the schism between sustainability and subsidization: Local banks, is the assumption, will not lend to MFI’s because they think it is too risky. But with a guarantee, they will start, and hopefully find out that they were wrong about the risk. This is nothing new. ACCION has had a Guarantee fund since 1984 and has recently revised their concept. If DANIDA uses their 2 decades of experience it’ll sure work great. But great idea, under all circumstances.
DANIDA Study on Global Guarantee Fund for Microfinance