SEB Microfinance Viktor Andersson

1. SEB Microfinance November 2016
Viktor Andersson, Portfolio Manager

2. What is microfinance - definition
• Financial products & services for poor people who are excluded from the
mainstream financial system
• Why are they excluded? They lack credit history, they have no collaterals,
and their financial needs are so small they are not commercially
interesting for mainstream banks
• Productive loans: Microfinance focuses on businesses, run by
microentrepreneurs
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3. What is microfinance - example
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Elizabeth Kamene Mutua
Outside Nairobi, Kenya
Client of KWFT
Self-started multi-entrepreneur
Here’s her story…

4. Investing in microfinance – the investment chain
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–Content
Microfinance Institutions
(MFIs)
Microfinance Funds
–Content –Content–Content
Microentrepreneurs in low- and middle-income countries
Microfinance Institutions provide financial services to poor entrepreneurs who are excluded from
the normal banking system, thus providing them opportunities to improve their businesses and their
overall situation.
SEB’s advisor
(Symbiotics), rating
institutions, partners
and network

5. Social aspects
Microfinance investments have a positive social impact
 The Micro and SME segment is essential for sustainable economic growth in frontier and emerging markets.
 Microfinance is about financial inclusion; it targets low income entrepreneurs who do not have access to the
normal financial system, who do not have collaterals and size to get bank services.
 It has a positive impact, where the capital enables businesses to grow, to generate wealth, and to make the
everyday life easier for millions of entrepreneurs and families.
Investing in microfinance – the investment case
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Interesting portfolio characteristics:
 Low correlation with other asset classes
 Low financial risk
 Short loans, frequent amortizations
 Large number of underlying borrowers
 Historically very low default rates (appr. 0.5%)
with the microfinance institutions
 Stable returns
Financial aspects
 Cash (Libor 3M USD): 0.56
 Bonds (JPM Hedged USD GBI Global): 0.04
 Stocks (MSCI World Index): -0.10
 Alternatives (HRFX Global Hedge Fund Index): -0.13
Microfinance debt correlations (2003-2016)

6. Microfinance Debt (USD) vs Other Asset Classes
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Stable returns also in shaky times…

7. What one invests in: KWFT, Kenyan Microfinance Institution
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Microfinance Bank, founded 1991
- Set up by women entrepreneurs in 1991 who wanted to address the
financial exclusion women faced, giving them the same opportunities
as their male counterparties
- One of the largest microfinance banks in Kenya, with more than 200
branches and outlets all over Kenya
- Owned by staff, some 60 000 customers (via Customer Stock
Ownership Program) and two PE investors (Incofin and NMI)
- Very strong social mission, focussing on women empowerment
(Men are now allowed to bank with KWFT, but that has to go via their wives/mothers/daughters)
Financial high-lights (2015)
Number of clients (appr.) 420 000
Number of staff 2 700
Gross Loan Portfolio (USD) 220 000 000
Debt/Equity 4.9
Average loan size (USD) 1 085
Operational self-sufficency 107%
Portfolio at Risk (30 days) 5%
Social Impact high-lights
- 99.5% female clients
- 65% rural operations
- Wide range of products from microcredits, to
agricultural loans, loans for water/renewable
energy units
- Continuously named one of the best
companies, all categories, to work for in Kenya

8. Client examples from Arusha in Tanzania and Varanasi in India
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Client example 1: working capital for shop owner
• Shop owner, urban location
• Supporting family from shop income
• One employee
• Uses microcredits to finance purchase of larger stocks of
goods from the main markets in Dar es-Salaam instead of
the local wholesalers
• This enables her to increase margins significantly, compared
to purchasing from local sources
Client example 2: solar light
• Basket production, rural location
• Loan to replace kerosene lamp with solar
light
• Safer production environment
• More cost efficient in the long run

9. Client example from Colombo, Sri Lanka
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Client example 3: growth capital
• Shoe production, rural location
• First loan 6y’s ago; buy equipment, mtrl
• Second loan 4 y’s ago; build production
area (and improve H&S)
• Third loan; expand production area,
storage
The key is that the loans are for productive purposes – they shall create or
add to the business of the clients.
• Enable microentrepreneurs to grow their businesses
• Diversify income streams/create new business
• Make running a business easier

10. SEB Microfinance Funds
Illustrated
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11. Summary SEB Microfinance Funds
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• Started 2013
• Four funds, only professional investors (so far…)
• Total AUM appr. SEK4.5bn
• Investing in 33 countries
• 87 Microfinance Institutions
• Reaching more than 16.5mn microentrepreneurs
through the MFIs we invest in

12. SEB Microfinance – example of geographical exposure
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Average Credit Rating BBB+/BBB
Shortest Maturity 18 months Longest Maturity 57 months

13. SEB Microfinance Funds in Short
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Performance since inception (SEK, net of fees)
Assets Under Management
Fund I & II: SEK500mn each
Number of investees:
Fund I: 38 Fund II: 41
SEB MFF I SEB MFF II
Annual performance (SEK, net of fees)
Fund I: 9.5%
Fund II: 8.5%

14. Summary SEB Microfinance
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• Invests in MFIs with good quality – social as well as financial
• Offers a well-diversified portfolio – geographically and
currency-wise
• An investment with good returns, which helps entrepreneurs in parts of the world where it is
needed the most

15. Disclaimer
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