Case Study Details - Playbook of Solutions

Description

Microfinance loans or microcredits are small loans provided to individuals or small businesses that do not have access to traditional banking services, either because they do not have a regular income, collateral, or credit history. These micro-loans enable them to start or expand a small business, or to invest in a small project (e.g., off-grid solar systems). Microcredits are a type of offering within the microfinance space. The latter also include other financial services that may be offered in parallel, like, for instance, microsavings, checking accounts or microinsurance, all of which are pertinent to enhance capital for the energy transition in emerging and developing economies.

Benefits

Microfinance loans offer several benefits, particularly in economically disadvantaged regions. They provide access to capital for those who might not otherwise be able to obtain it, thereby encouraging entrepreneurship and the development of small-scale projects. This access helps improve living standards, promote economic development and reduce unemployment. More broadly, microfinance practices serve as an alternative approach to development, shifting the focus from government-led initiatives to market-based solutions. They rely on a variety of institutions that combine social and financial objectives to provide services, using market mechanisms as a means of delivering aid and promoting economic growth.

Case Study

Green microfinance loans in Bangladesh

In 2021, the SAJIDA Foundation, a non-profit organization based in Bangladesh, received the authorization from the Bangladesh Securities and Exchange Commission to issue Bangladesh’s first green bond. It raised USD 10 million to provide microfinance loans to farmers and low-income families. It reiterated the issuance of a second green bond in 2023, this time, to raise around USD 20 million.

The decision to seek funds through this bond issuance was Influenced by increased demand for microcredit services post-Covid and challenges associated with foreign loans and high bank interest rates. SAJIDA’s previous green bond had already set a precedent for utilizing bond market funding. At the time of writing, this latest new bond aimed to diversify its debt sources and extend the repayment period.

Additional Sources

Microfinance Loans