Proximity Finance signed a Ks 5 million back to back funding agreement with Yoma Bank to expand micro-lending to smallholders

Proximity Finance, the microfinance arm of Yangon-based Proximity Designs, a social enterprise outfit, has signed a K5 billion back-to-back funding agreement with Yoma Bank in a move to expand micro-lending to smallholders.  

Back-to-back financing in this instance refers to an arrangement where Yoma Bank provides credit in local currency to local microfinance institutions like Proximity Finance. 

Proximity Finance then uses a hedging strategy where the US dollar acts as the hedge against exchange-rate fluctuations. The semi-collateralised funding will be provided by MCE Social Capital, a nonprofit organisation based in San Francisco, on a three-year tenor.

‘’This back-to-back structure of funding allows more investment into Myanmar in hard currency while allowing microfinance institutions to repay in local currency,’’ Proximity Finance CEO Hedvig Sundberg said in a press release.

The funds from Yoma Bank will go towards low-interest rate local-currency loans for an estimated 12,800 farming families in Myanmar. Proximity Finance will distribute these loans.

Sundberg said this financing structure makes it possible to continue funding microfinancing programmes as investing in emerging markets like Myanmar’s can be expensive due to the hedging practices that firms need to adopt to protect earnings from volatile exchange-rate movements.

He added that the deal with Yoma Bank should be an example for other local banks to offer local-currency funding to microfinance institutions. 

This funding followed a commitment of US$8 million from the US government’s Overseas Private Investment Corporation and an additional commitment of US$2 million subordinated debt from the Skoll Foundation to Proximity Finance announced on April 3.

Proximity Finance, which mainly offers crop loans ranging from K250,000 to K600,000, has served the needs of over 100,000 rural households in 2,000 villages since it started. Besides offering loans, the microfinance outfit, said to be one of the largest in the country, offers advice on soil maintenance, crop variety, and methods to reduce crop losses. Yangon-based Yoma Bank is the fourth-largest private lender by assets in Myanmar.

(The Myanmar Times: https://www.mmtimes.com/news/proximity-finance-provide-k5-billion-microfinance-funding.html )

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