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Z sanyra and_e_espejo
 

Z sanyra and_e_espejo

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    Z sanyra and_e_espejo Z sanyra and_e_espejo Presentation Transcript

    • THE ROLE AND IMPACT OF PRIVATE SECTOR CAPITAL IN THE GLOBAL MICROFINANCE SECTOR Zina Sanyoura & Elvira Espejo
    • How did we examine the subject?  Interviews with the main players in the microfinance sector  More than 70% of the global microfinance asset base covered  Rationale is to “push the envelope” on the on-going debate Many questions… some modest suggestions…
    • State of microfinance funding…  A continued surge in private sector funding  Still untapped demand of MFIs  MFIs remain hindered from developing adaptive financial instruments for their borrowers Why is there a mismatch? Is there a role confusion among the players in the sector? Why did private investors enter the sector in the first place?
    • So much funding, chasing so few MFIs… Global lending portfolio lagged behind aggressive funding growth resulting in record high liquidity levels. Large funding base chasing a select universe of mature well-established MFIs in LAC / ECA Lack of adequate / conducive regulatory environment Despite economic downturn, supply of funding growing at a decreasing pace Risk concentration in straight hard currency mediumterm funding targeting mature MFIs Minimal funding to down market players
    • Intuitive wisdom tells a tale of a gradual evolution to the more risky institutions… Political & Macroeconomic Risk Environment Technical Assistance ($/in-kind) & Capacity Building as MF investors gain comfort with MF sector… Early Stage / Greenfield / NGO / Non-Profit / NonRegulated MFIs Sphere of Donor Funding / DFI Engagement Political & Macroeconomic Risk Environment Commercially Sustainable Operations Mature / For-Profit / Regulated MFIs Traditional Financial Risk-Return Relationship Begins to Hold… Sphere of Commercial / Private Sector Investors
    • Questioning the immunity of MF, and the impediment to private sector capital… Global economic natural evolution crisis impeded this Is MF is immune / counter-cyclical? Mature MFIs continue to source needed funding to the detriment of smaller more fragile institutions Record level liquidity presented the reality of a mismatch GOLDEN OPPORTUNITY for MF investors to reassess how to focus on developing the products and services demanded by MFIs
    • Is it a question of Risk Appetite? General similarity in risk-return profile of MIVs Not enough risk appetite to go down market Unable to provide capital to earlystage / greenfield / NGO / or transforming institutions with short-lived track record Is MF an Asset Class in and of itself?
    • Is it a question of Funding Structure? MFI Demands • • • • Local currency funding Longer tenors Mix of fixed income and equity exposure Capacity building assistance Investor Supplies • Generally structured in hard currency • Limited ability to extend long term funding • Mature, established institutions with track record Mismatch Need for new experimental vehicles to structure alternative instruments with capacity building capabilities
    • Is it a question of Aggressive Fund Raising coupled with Ambitious Return Expectations? A perceived boom in MF was a significant driver in aggressive fund raising efforts Most AUM were sourced from institutional investors that were promised ambitious return expectations Limited ability to go down market in the fear of compromising overall portfolio returns
    • Is it a question of Role Confusion? DFIs intrinsically have a catalytic role to engage the private sector DFIs were and still are the impetus to bring the MF sector to the forefront Slow adaptation to the rapid take-up by the private sector A converging market approach, yet most MF investors continue to co-invest with DFIs A risk of role over-lap? Need to define complementary roles… Is this the time to admit that the sector needs more venture capital type investors?
    • Why did the private sector enter in the first place? Venture Philanthropist Approach Yet, with a few MF lucrative exceptions, the Capital markets returns…funds demonstrated strong returns are still not earmarked from core commensurate with appetite for MF investment the intrinsic risk exposure portfolios profiles assumed
    • So what now? With a few exceptions, the returns are still not commensurate with the intrinsic risk profiles assumed Achieving traditional emerging market return is highly dependent on the expertise of portfolio managers to select “true winners” As returns begin and continue to depress, private commercial investors are beginning to question whether the risk-adjusted returns truly reflect market dynamics Need to re-assess how MF investors engage in the sector:  Set new return expectations  Create innovative experimental vehicles  Meet the down market MFI demand