Microfinance investments – strategies for triple-bottom-line performance. originally posted by Sebastien Juhen

1. Microfinance investments –
strategies for triple-bottom-line
performance
Sébastien Juhen, CIIA
14 November 2013

2. Table of contents
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Microfinance investments: overview
Defining a triple-bottom-line strategy
Measuring the results: triple-bottom-line performance
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3. Microfinance investments: growth across sub-asset classes
Investors in the microfinance asset class
include international financial institutions
(e.g. development banks like KfW, IFC), donor
governments (e.g. Swiss Development
Corporation, EU, BMZ), microfinance
investment funds or vehicles (MIVs) as well as
commercial investors:
– “Impact first” investors who aim to
maximize social & environmental
impact instead of financial returns
– “Finance first” investors who seek
investment vehicles that offer risk-adjusted
market returns while also
Microfinance Investment Vehicles (MIVs) -
0.8
Growth in assets (USD bn)
0.9
3.4 3.7
1.1
4.2
1.2
5.4
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
generating social & environmental impact Sources: Microrate, The State of Microfinance Investments 2013 ; 2013
Symbiotics MIV Survey
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1.8 1.7 1.8 2.2
0.0
2009 2010 2011 2012
Non-MF Assets MF Debt MF Equity

4. Strategy definition: the microfinance investment toolbox
Financial
Social
Environmental
- Debt, Equity, Hybrid
- Pure Microfinance vs SME,
Fair Trade, etc.
- Local, Hard Currency
- FX hedging
- Mission statement
- Target population
- Range of services
- Job creation
- Focus on underserved areas
- Mission statement
- Range of services
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5. From strategy to performance: defining the indicators
Financial
Social
Environmental
- Debt, Equity, Hybrid
- Pure Microfinance vs SME,
Fair Trade, etc.
- Local, Hard Currency
- FX hedging
- Mission statement
- Target population
- Range of services
- Job creation
- Focus on underserved areas
- Mission statement
- Range of services
- Financial target return p.a.
- Risk parameters
- Appropriate benchmark(s)
- Female vs male borrowers
- % of extreme poor
- Extra-financial services
- # of MFI employees
- Rural vs urban borrowers
- Extra-financial services
- % of «green» loans
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6. From strategy to performance: the investment process
Country and MFI
diversification criteria
Portfolio risk
analysis
Investment
approval
Credit
approval
Due Diligence
(Financial,
Social,
Environmental)
Identification of
potential investees
Bottom-up
Credit Process
Top-down
Portfolio Construction
Process
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7. Risk Pricing
Loan pricing in line with the financial
and social rating of each
microfinance instititution
From strategy to performance: the analytical tools
Financial Rating:
BOSCO
BlueOrchard Credit Scoring and Rating
System
Social & Environmental
Rating:
SPIRIT
Social Performance & Impact Reporting
and Intelligence Tool
BOSCO for AB MFB Weight Aug-13
I. CORPORATE GOVERNANCE 12% 5.4
II. STRATEGY 6% 3.0
III. RISK POSITIONING 65% 44.2
IV. CAPITAL ADEQUACY 12% 10.8
V. FINANCIAL PERFORMANCE 5% 2.0
VI. SIZE ADJUSTMENT 0% -4.4
Overall Score 100% 61.0
Credit Rating for AB MFB Rating
Rating Date Aug-13
Sovereign Country Rating Nigeria BB-Last
Country Rating approval date Nov-12
Notch Adjustment DOWN from BOSCO Score 3
Suggested Stand Alone Credit Rating B-Notch
Adjustment UP for External Support 1
Suggested Credit Rating B
Problem Credit Designation Not Problem Credit
Full Parent Guarantee No
Parent Rating
Assigned Credit Rating B
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8. Measuring performance: investor reporting is key
Financial
100.0
110.0
120.0
130.0
140.0
150.0
160.0
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
SMX MIV Debt USD BOMF Class I USD LIBOR 6M
Example: BlueOrchard Microfinance Fund,
Class I Shares in USD, as of 30 Sep 2013
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9. Measuring performance: investor reporting is key
Social
Example: BlueOrchard Microfinance Fund,
as of 30 Sep 2013
Based in León, Nicaragua, Pro Mujer Nicaragua had a loan portfolio of USD 16 million as of August 2013,
serving more than 55,000 clients (97% of whom are women) with an average loan size of USD 286. In addition to its
credit products, Pro Mujer Nicaragua offers medical services through clinics staffed with a physician and a nurse in all
branches. All clients have access to basic health tests, such as blood pressure measuring, diabetes test, and
measurement of body mass index (BMI). With the cooperation of the Linked Foundation, Global Partnerships, and PATH,
the MFI designed an optional health package for its clients – called “Vida Sana” – that can be acquired for an annual fee
of USD 43. The health package’s goal is the early detection of common and preventable illnesses and is currently offered
in three departments andthe MFI has set itself the challenge to expand such initiative to all seven departments of the
country where it has branches. The MFI also has alliances with specialist physicians and laboratories so clients that need
more specialized services can obtain sizable discounts.
Moody’s Analytics completed a social performance assessment (SPA) of Pro Mujer in Nicaragua in October 2013 and
assigned the MFI an SPA grade of SP2, the second-highest grade possible.
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10. Measuring performance: investor reporting is key
Environmental
Senegal
Microcred Senegal is in the pilot phase of its CleanTech project. The new credit
product enables to lease solar energy products (batteries, lamps, radios, solar
refrigerators): The borrower becomes owner only after the credit is reimbursed.
The first phase is being launched in three branches and will be extended
throughout the network in 2014.
Cambodia
Amret offers loans to client to purchase Bio-digesters and currently reaches
nearly 1,000 clients with this product, for a total outstanding amount of nearly
USD 300K.
Bosnia/ Herzegovina
Partner participates in the country’s “Solar energy as the future of sustainable
development” project, and offers financing to start the production of solar
collectors, efficient heating systems and other renewal energy products. As of
June 2013, 20 Bosnian manufacturers have started the production of solar
collectors as part of this project.
Mongolia
XacBank has established an EcoBanking Department which provides financing
for energy efficient stoves distributed by the government and NGOs under the
Millennium Challenge program to reduce smog levels. This has also allowed
XacBank to accumulate and sell carbon credits to Citibank via the Clean
Development Mechanism market.
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11. Sébastien Juhen
Head of Portfolio Management
sebastien.juhen@blueorchard.com
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Your contacts
BlueOrchard Finance S.A.
32, Rue de Malatrex
1201 Geneva
Switzerland
T +41 22 596 47 77
Feldeggstrasse 12
8008 Zurich
Switzerland
Tel: +41 44 388 12 22
Remo Oswald
Director Business Development
remo.oswald@blueorchard.com

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