Former US President Bill Clinton's recently launched global initiative is backing a new programme that aims to make as much as US$50 million available in credit guarantees to microfinance institutions supporting small businesses in some of the world's less developed markets.

The programme's developers, Citigroup and the Grameen Foundation USA (GFUSA), say the scheme is unique because of its innovative use of letters of credit (L/Cs) in its guarantee mechanism.

Seed capital

The GFUSA Growth Guarantees programme, unveiled in October at the inaugural meeting of the Clinton Global Initiative, aims to provide guarantees to support small loans to help poorer people to start, sustain or grow very small, self-sustaining businesses.

"The GFUSA Growth Guarantees will enable microfinance lenders to assist larger numbers of impoverished people to lift themselves from poverty by starting businesses of their own," said GFUSA president, Alex Counts.

L/Cs not cash

Global Director of Citigroup's Microfinance Group, Bob Annibale, explains why the programme is innovative in its use of L/Cs:

"This programme structure is unique because individual donor guarantors don't give their money, but rather offer their credit to establish a pool of guarantees in the form of standby letters of credit, which support the anticipated U$50 million programme," he says.

"Donor guarantors will continue to hold their assets and realise returns on their portfolio while microfinance institutions gain access to increased financial resources," he adds.

Commitments

Citigroup will facilitate the issuance of the guarantees in coordination with GFUSA, which says it has already secured commitments for more than half of the programme's US$50 million target.

The Clinton Global Initiative focuses on poverty reduction, the use of religion in reconciliation and conflict resolution as well as the implementation of new business strategies and technologies to combat climate change and strengthen governance.

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