Microfinance Investing:Leveraging Capital for Financial and Social Returns                                                ...
Discussion Points   • Microfinance Demand   • Investment Landscape   • The Business and Social Case for Commercialization ...
Microfinance Funding Demand • Total population living under $2/day: 2.7 billion • Total current microfinance customers: 10...
Microfinance Investments$10.1 billion as of 12/08 by primarily cross border funders   • Development Finance Institutions (...
Microfinance Investment: Sample ReturnsEquity returns   • CGAP – J.P. Morgan Equity survey (Jan. 05 – Sept. 08):       1.3...
Microfinance InvestorsInstitutional investors:   •   Government-owned DFIs   •   Corporations (banks, insurance companies)...
Microfinance Investment Environment: Why Invest GivenSignificant Hurdles?• Non-standardized information, self-reported and...
Microfinance Investment Environment: Why Invest GivenSignificant Hurdles?• Fewer investor services compared to more establ...
The Business Case for Microfinance Investment MFIs exhibit attractive business attributes:    – Loyal client base means lo...
The Business Case for Microfinance Investment, cont. • High growth sector with huge market demand –MF penetration   in 8 l...
The Business Case for MFIs to Commercialize • Expand outreach to more unbanked borrowers • Replace shrinking donor contrib...
The Business and Social Case for Microfinance Investment • Donor funding is never sufficient to meet human development   n...
The Business and Social Case for Microfinance Investment • Financial and social returns are linked and mutually reinforcin...
Leveraging Capital for Financial and Social Returns - Conclusion Microfinance presents an attractive opportunity for impac...
Appendix: About IAMFIIAMFI is a global membership organization dedicated to helpingcommercially oriented microfinance inve...
IAMFI’s MembersLimited Partners (LPs): Active and potential investors who invest in an  investment vehicle rather than inv...
IAMFI’s Members, cont.Founding MembersDOEN Foundation           Plainfield Asset ManagementOmidyar Network           Rocke...
IAMFI’s ServicesInformation Portal   • Robust web site with third-party information and data about      microfinance and m...
IAMFI’s Services, cont.Education, Conferences and Events  • Hosted and co-hosted international conferences on    microfina...
IAMFI’s Values•   Integrity•   Transparency•   Independence•   Sustainability•   Action orientation•   Inclusion•   Value ...
The International Association of Microfinance Investors (IAMFI) is a global   membership organization dedicated to serving...
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International Microfinance

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Joan Trant,
Executive Director, International Association of Microfinance Investors.

Joan Trant's presentation from the 2009 Take Action! Impact Investing Conference in San Francisco.

Published in: Business
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International Microfinance

  1. 1. Microfinance Investing:Leveraging Capital for Financial and Social Returns Joan Trant Take Action! Summit October 5-7, 2009
  2. 2. Discussion Points • Microfinance Demand • Investment Landscape • The Business and Social Case for Commercialization • Appendix: IAMFI Overview
  3. 3. Microfinance Funding Demand • Total population living under $2/day: 2.7 billion • Total current microfinance customers: 100 million • Total estimated potential customers: 1.5 billion • Total estimated microfinance loans outstanding: $35 billion • Estimated funding gap: $265 billion
  4. 4. Microfinance Investments$10.1 billion as of 12/08 by primarily cross border funders • Development Finance Institutions (DFIs): $4.9B • Private Institutional: $2.9B • Retail: $2.2BInstruments • Fixed Income: 77% • Equity: 21%, but growing…. - 11 new funds launched in 2008; all were equity or equity + debt - MF equity investment 2004-08: $2.2B to $7.6B$6.1B funding channeled via 106 microfinance investment vehiclesSource: CGAP and IAMFI
  5. 5. Microfinance Investment: Sample ReturnsEquity returns • CGAP – J.P. Morgan Equity survey (Jan. 05 – Sept. 08): 1.3 - 1.9x book value • Recent equity sales of Mongolian bank shares: • two exits in late 05 - early 06: 1.2x book • one exit in 2007: 1.5x • one exit in 2008: 2.5x • one exit in 2009: 2.5x • ROE returns range from 12-23% (higher in India)Debt returns range from 2-13%
  6. 6. Microfinance InvestorsInstitutional investors: • Government-owned DFIs • Corporations (banks, insurance companies) • Pension funds • Endowments • Private equity and hedge funds • Foundations • Family OfficesIndividual Investors • High net worth • Retail
  7. 7. Microfinance Investment Environment: Why Invest GivenSignificant Hurdles?• Non-standardized information, self-reported and collected by diverse sources• Most information focused on microfinance institutions’ (MFIs) and donors’ needs• Lack of transparency, deal standardization, consensus on best practices
  8. 8. Microfinance Investment Environment: Why Invest GivenSignificant Hurdles?• Fewer investor services compared to more established asset classes (credit ratings, secondary market, fund rankings)• Many MFIs seek commercial capital, but only about 250 are investor-ready• The industry must address both the demand for funding by the unbanked and the limited absorptive capacity of the MFIs
  9. 9. The Business Case for Microfinance Investment MFIs exhibit attractive business attributes: – Loyal client base means lower acquisition and operation costs – Interest rates are high to cover hefty operational expenses – Microborrower loan repayment rates are 95-98% – ROE average around 19% – Short-term loans contribute to high solvency and liquidity
  10. 10. The Business Case for Microfinance Investment, cont. • High growth sector with huge market demand –MF penetration in 8 largest countries is below 5%, with 15x growth factor • Microfinance offers emerging market diversification and low correlation – good for reducing investment volatility • Microfinance helps investors align their investments with their values in an active way, not just through passive screening
  11. 11. The Business Case for MFIs to Commercialize • Expand outreach to more unbanked borrowers • Replace shrinking donor contributions • Improve capital structure • Increase range of products for clients: savings, insurance, remittances, specialized loans for education and housing • Founding nonprofit lending institutions may use profits to fund services for the most vulnerable
  12. 12. The Business and Social Case for Microfinance Investment • Donor funding is never sufficient to meet human development needs • MFI transformation and commercialization facilitate client savings • Savings provide an inexpensive, stable source of capital for MFIs • Savings products offer clients safety and liquidity • Savings - not loans - alleviate poverty
  13. 13. The Business and Social Case for Microfinance Investment • Financial and social returns are linked and mutually reinforcing • Strong financial performance improves institutional capacity to serve the target population • Strong social performance improves customer loyalty, referrals and repayment rates, lowering costs and risks • Commercialization should not be viewed as an inverse proxy for development impact • Investors may select investment partners based on desired level of social performance focus
  14. 14. Leveraging Capital for Financial and Social Returns - Conclusion Microfinance presents an attractive opportunity for impact investors with: • Global focus • High tolerance for illiquid assets • Long-term investment horizon • Acceptance of the assets’ risk profile • Leniency regarding short industry track record
  15. 15. Appendix: About IAMFIIAMFI is a global membership organization dedicated to helpingcommercially oriented microfinance investors, particularly LimitedPartner institutional investors that invest through MIVs, to leveragetheir capital more effectively. IAMFI’s services include:• Providing credible, comprehensive and timely information on the microfinance industry from an independent perspective• Conducting research on investment-related topics• Hosting virtual and in-person educational and networking events• Facilitating dialogue and action among all sector participants to improve the investing environment
  16. 16. IAMFI’s MembersLimited Partners (LPs): Active and potential investors who invest in an investment vehicle rather than investing directly in microfinance institutions.General Partners (GPs): Public and private entities that manage a fund or investment vehicle in which there are many investors.Service Providers (SPs): Entities that help advise, structure, consult or broker investments in the microfinance industry.
  17. 17. IAMFI’s Members, cont.Founding MembersDOEN Foundation Plainfield Asset ManagementOmidyar Network Rockefeller FoundationGray Matters Capital Triodos ManagementTIAA-CREFCharter MembersBlueOrchard Finance USA, G. Casagrande (SPBD, MicroDreams),Co-operative for Financial Services, Grassroots CapitalManagement, J.P. Morgan, MEDA, MicroCredit Enterprises,MicroVest, Minlam Asset Management, MorganStanley, Norwegian Microfinance Initiative, Omidyar-TuftsMicrofinance Fund, Triple Jump, two individuals
  18. 18. IAMFI’s ServicesInformation Portal • Robust web site with third-party information and data about microfinance and microfinance investing • Reviewed for relevance and accuracy so that investors may evaluate information more efficiently • Password-protected “Members Only” sectionResearch • White papers, Position papers • Studies on debt, equity, GP and LP investor checklists
  19. 19. IAMFI’s Services, cont.Education, Conferences and Events • Hosted and co-hosted international conferences on microfinance investing • Issue-specific events and seminars for special interest groups within the Association’s membershipCommunity • Forum for members to discuss interests, goals and concerns • Vehicle for dialogue, consensus-building and action among all sector actors, e.g. IAMFI Microfinance Lenders Working Group
  20. 20. IAMFI’s Values• Integrity• Transparency• Independence• Sustainability• Action orientation• Inclusion• Value creation• Collaboration
  21. 21. The International Association of Microfinance Investors (IAMFI) is a global membership organization dedicated to serving current and potential market-driven microfinance investors, especially those who invest in funds and other vehicles. IAMFI helps investors achieve their goals by offering credible, objective industry information, conducting research, organizing educational and networking activities, and working to improve the global environment for microfinance.The association seeks to promote the virtuous circle of capital flows between private sector sources, investment vehicles and microfinance institutions, enabling greater access to financial services for the world’s working poor. For more details, contact Joan Trant, jtrant@iamfi.com, +1.212.297.2137.
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