A coordinated response to Covid-19 for international lenders
Martin Heimes, who co-heads debt investments in financial institutions for responsAbility, is pleased to have agreed with other lenders on industry guidelines to deal with the impact of Covid-19.
With Covid-19 likely to impact portfolio companies’ liquidity levels, you and other lenders have been developing guidelines for the international lender community to deal with this situation. What is the result?
On Friday 29th April, responsAbility, together with other inclusive finance fund managers issued a Memorandum of Understanding entitled “Coordination among MIVs in response to Covid 19”. This collective initiative of lenders will act as the foundation of the sector’s response to challenges which financial institutions around the world are facing due to measures to contain the spread of Covid-19, ensuring a coordinated approach among international lenders. The lenders who worked on this MoU already manage more than USD 15 bn of funds invested, but we also expect that the endorsed standards will be taken up by many more lenders.
Why is this important?
We are witnessing that measures taken locally to reduce the spread and impact of COVID-19 are directly affecting clients, operations and liquidity of microfinance and SME finance institutions which results in an increased need for the rescheduling of loans that our funds provided to these financial institutions. The MoU aims to establish a common approach among lenders to deal with such rescheduling requests. It establishes trust and transparency among the lenders’ community and allows it to be speedy in its reaction, which effectively supports our portfolio companies and allows them to adequately respond to temporary changes in business conditions. The purpose of this document is therefore to be a guide for our organizations, our investment teams, our portfolio companies and other relevant stakeholders.
"After Covid-19, microentrepreneurs and SMEs will form a vital basis for social and economic recovery."
How do you propose to do that?
We advocate a joint lender process for rescheduling or otherwise deferring debt repayments for financial institutions serving the world’s poor. The MoU provides for four tiers of intervention depending on the underlying health of the investee institution. It also acknowledges that transparency and partnership are the only ways to achieve the collective goal: to support inclusive financial institutions and protect vulnerable clients as well as helping them to prosper once this crisis is over. We have learned from previous experience that, by working together in close cooperation we can best help our portfolio companies and our own organizations through challenging times, which, ultimately, is also in the best interest of our investors.
What is the ultimate positive outcome you are aiming at?
After Covid-19, microentrepreneurs and SMEs will form a vital basis for social and economic recovery. Continued access to finance should help them through a – hopefully temporarily – difficult liquidity situation and allow them to be ready to support their clients once the economy picks up once again. It is therefore of vital importance to support financial inclusion and preserve the strong foundations that have been built over recent years.