Sebastien juhen


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Measuring the impact of investments remains a main challenge for sustainable finance professionals and, together with Climate Change, an overarching theme at TBLI. Sixteen related workshops offer debate on ESG and Impact Investing trends, private equity, portfolio strategy, food production, emerging markets, sustainable energy or philanthropy investing.

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Sebastien juhen

  1. 1. Microfinance investments – strategies for triple-bottom-line performance Sébastien Juhen, CIIA 14 November 2013
  2. 2. Table of contents 1 Microfinance investments: overview 2 Defining a triple-bottom-line strategy 3 Measuring the results: triple-bottom-line performance 2
  3. 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: Microfinance Investment Vehicles (MIVs) Growth in assets (USD bn) 10.0 9.0 1.2 8.0 7.0 1.1 6.0 0.8 0.9 5.0 – “Impact first” investors who aim to 4.0 maximize social & environmental impact instead of financial returns – “Finance first” investors who seek investment vehicles that offer riskadjusted market returns while also 5.4 3.0 generating social & environmental impact 4.2 3.4 3.7 1.8 1.7 1.8 2009 2010 2011 2.0 1.0 2.2 0.0 Non-MF Assets MF Debt 2012 MF Equity Sources: Microrate, The State of Microfinance Investments 2013 ; 2013 Symbiotics MIV Survey 3
  4. 4. Strategy definition: the microfinance investment toolbox - 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 Social Environmental 4
  5. 5. From strategy to performance: defining the indicators - Debt, Equity, Hybrid Pure Microfinance vs SME, Fair Trade, etc. Local, Hard Currency FX hedging - Financial target return p.a. Risk parameters Appropriate benchmark(s) - Mission statement Target population Range of services Job creation Focus on underserved areas - Female vs male borrowers % of extreme poor Extra-financial services # of MFI employees Rural vs urban borrowers - Mission statement Range of services - Extra-financial services % of «green» loans Financial Social Environmental 5
  6. 6. From strategy to performance: the investment process Country and MFI diversification criteria Credit approval Bottom-up Credit Process Due Diligence (Financial, Social, Environmental) Portfolio risk analysis Top-down Portfolio Construction Process Investment approval Identification of potential investees 6
  7. 7. 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 I. CORPORATE GOVERNANCE II. STRATEGY III. RISK POSITIONING IV. CAPITAL ADEQUACY V. FINANCIAL PERFORMANCE VI. SIZE ADJUSTMENT Overall Score Weight 12% 6% 65% 12% 5% 0% 100% Risk Pricing Loan pricing in line with the financial and social rating of each microfinance instititution Aug-13 5.4 3.0 44.2 10.8 2.0 -4.4 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 Full Parent Guarantee Not Problem Credit No Parent Rating Assigned Credit Rating B 7
  8. 8. Measuring performance: investor reporting is key 160.0 Financial 150.0 140.0 130.0 120.0 110.0 SMX MIV Debt USD BOMF Class I USD Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Jun-04 Example: BlueOrchard Microfinance Fund, Class I Shares in USD, as of 30 Sep 2013 Dec-03 100.0 LIBOR 6M 8
  9. 9. Measuring performance: investor reporting is key Pro Mujer Nicaragua Social Based in León, 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. Example: BlueOrchard Microfinance Fund, as of 30 Sep 2013 9
  10. 10. Measuring performance: investor reporting is key Senegal Environmental 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. 10
  11. 11. 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 Sébastien Juhen Remo Oswald Head of Portfolio Management Director Business Development 11
  12. 12. Disclaimer This material is intended for information and marketing purposes only. It is not to be regarded as investment research, a sales prospectus, an offer or solicitation of an offer to enter in any investment activity. Please note that BlueOrchard Finance S.A. retains the right to change the range of services, the products and the prices at any time without prior notice and that all information and opinions indicated are subject to change. Certain services and products are subject to legal provisions and cannot therefore be offered worldwide on an unrestricted basis. Asset classes, asset allocation and investment instruments are indicative only. Some figures may refer to the past or simulated past performance and past performance is not a reliable indicator of future results. Some figures may be forecasts only and forecasts are not a reliable indicator of future performance. Some charts and/or performance figures may not be based on complete 12-month periods which may reduce their comparability and significance. If the currency of a financial product or financial service is different from the currency of your home country, the return may increase or decrease as a result of currency fluctuations. Fees may not be included and these will reduce future performance accordingly. Please be reminded that all investments carry a certain degree of risk. Your attention is hereby drawn to such risk. Some investments may not be readily realisable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult. Some investments may be subject to sudden and large falls in value and on realisation you may receive back less than you invested. Tax treatment depends on the individual circumstances and may be subject to change in the future. BlueOrchard Finance S.A. does not provide legal or tax advice and make no representations as to the tax treatment of assets or the investment returns thereon both in general or with reference to specific client's circumstances and needs. Clients should obtain independent tax advice on the suitability of products, assets or instruments before investing and as they may consider appropriate. Source of all information is BlueOrchard Finance S.A., unless otherwise stated. BlueOrchard Finance S.A. specifically prohibits the redistribution of this material in whole or in part without the written permission of BlueOrchard Finance S.A. BlueOrchard Finance S.A. accepts no liability whatsoever for the actions of third parties in this respect. 12