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| Best Practices |
Pooling Resources
Elizabeth Wine
04/01/2005
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Janet McKinley and her husband, George Miller, have supported microfinance programs for the past decade. They first learned how small business loans to individuals in developing countries can help lift them out of poverty during a visit to a village a four-hour drive outside Hanoi. There they spent a day observing how a local microfinance institution (MFI), essentially a small bank, made loans to aspiring local businesspeople. The women who came looking for loans earned less than $2 a month.
 “We were just blown away,” McKinley recalls. “We said if a $20 loan can transform somebody’s life, we ought to be making a lot of $20 loans.” Since then, the couple estimates they have contributed between $8 million and $10 million to various microfinance programs in Asia.
Capital-raising for microfinance programs took a great leap forward in sophistication last year with the first securitization of MFI loans—a transaction in which McKinley and her husband participated. Securitization, the backbone of the U.S. mortgage market, is the process of bundling loans (or other revenue producing assets) together and selling them to investors in the form of bonds—in other words, turning them into securities, hence the term. The sponsors plow most of the net proceeds from the bond offering back into new MFI loans. In this way, they tap a new source of capital to support their microfinance initiatives. McKinley and Miller believe securitization could very well help MFIs gain access to much more capital.
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