World Bank and German government pledges to infuse cash into microcredit

Both the World Bank and the German government have pledged to put some cash into microcredit banks. They plan on spending $500 million dollars and hope to withdraw the money when the credit crisis is over.

Some microcredit institutions have had trouble securing extra funds during the world's credit crisis.

The International Herald Tribune writer Carter Daugherty details the plan.

"You have some viable projects here where the financing has simply dried up," the World Bank president, Robert Zoellick, said by telephone from Berlin, where he and the heads of other leading economic organizations met with Chancellor Angela Merkel.

The microcredit investment fund is part of a broader effort by the bank and other development agencies to mobilize rich-country cash for poorer countries during the credit crisis, Zoellick said. Other funds are focused on infrastructure projects, bank recapitalization and trade finance.

Microcredit institutions, which generally make tiny loans of $100 or less to individuals or small businesses, gained attention in the 1990s as a way to foster private enterprise in poor countries. In 2006, Mohammed Yunus, the founder of the Grameen Bank in Bangladesh, one of the first microbanks, won the Nobel Peace Prize for his work.

Though many banks were seeded with money from western aid agencies, a long process of drawing more investment from private sources was well under way - until the credit crisis began in August 2007.

"In general, there was a lot of momentum from the private sector," said Jack Lowe, president of BlueOrchard Finance, one of the firms that have been selected to manage the new fund. "But when you have the wind at your back and financial markets are heady, it is easier to raise money."

Under the plan, the World Bank would initially provide $150 million alongside another $130 million from the German government. Zoellick said the bank was soliciting contributions from other countries and agencies, and hopes to mobilize up to $600 million. That would be enough to help 150-200 microfinance banks based in 40 developing countries, he said.