Sandra Darville


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  • Enron cluster
  • Sandra Darville

    1. 1. Multilateral Investment Fund (MIF) <ul><li>Established in 1993 to encourage the growing role of the private sector in Latin America and the Caribbean. </li></ul><ul><li>Equipped with funding of US $1.3 billion, for both grants and investments to support small-scale, targeted interventions that pilot new approaches and act as a catalyst for larger reforms. </li></ul>
    2. 2. Small Enterprise Investment Fund <ul><li>Uses equity, loans, and quasi-equity to promote small and microbusinesses in Latin America and the Caribbean. </li></ul><ul><li>US$ 220mm committed in 35 venture capital funds and 18 microfinance institutions </li></ul><ul><li>Seeking innovative approaches to solve “old” problems </li></ul>
    3. 3. Capital Markets Case Study I Building a microfinance industry
    4. 4. The experience of “donors” in making investments in Latin American microfinance institutions? <ul><li>Donors took early risks of start-up institutions which private capital was unwilling to take. </li></ul>
    5. 5. Current Status <ul><li>Multilateral and bilateral agencies participating in specialized investment funds like Profund, Lacif, IMI, Gateway. </li></ul><ul><li>Joint ventures by “donors” with Private, strategic investment seen in new entities like Bangente, VZ, FIE, Bolivia, Ecofuturo, Haitian initiatives. </li></ul><ul><li>Many microfinance institutions are now active, recognized borrowers on local capital markets </li></ul>
    6. 6. Challenges in mainstreaming the industry <ul><li>Confused, inconsistent legal, regulatory environments. </li></ul><ul><li>Governance challenges caused by ownership structures, newness of the activity. </li></ul><ul><li>Still, relatively little private capital involved to date because of high perceived risk. </li></ul>
    7. 7. But! <ul><li>Continued sound performance by market leaders which are increasingly visible. Many mfi’s are the best performers in their financial sector - ROEs of over 15%. </li></ul><ul><li>Varied institutions at various stages of growth - healthy competition and stable, diversified funding sources </li></ul><ul><li>Increasing interest by traditional banking sector. </li></ul>
    8. 8. AND! <ul><li>More consistency in lending methodologies as best practices are proven. Actuarial analysis can be made. </li></ul><ul><li>Development of new financial products that raise new opportunities for investment and diversification </li></ul>
    9. 9. How to bridge gap between formal capital market and the sector ? <ul><li>Capital markets are increasingly globalized. Investors have a wide area of investment opportunities and very little time to invest in choosing among alternatives. </li></ul><ul><li>The industry needs to move toward standardization in terms of legal structure, methodologies, regulatory structures, etc. </li></ul>
    10. 10. Attracting capital to the sector <ul><li>Transparency, consistency and high quality of financial information. </li></ul><ul><li>Adviser, rating agencies, other third parties should evolve which can intermediate between entities and potential investors. MIF funding for this. </li></ul><ul><li>Risk sharing with private sector – DFL bond issue </li></ul>
    11. 11. Capital Markets Case Study II Building a venture capital industry
    12. 12. Building a Venture Capital Industry: the starting point <ul><li>Huge unmet demand by cash-strapped SMEs </li></ul><ul><li>Incipient v/c industry with no track record </li></ul><ul><li>Poor regulatory environment accompanied by, in some places, poor rule of law </li></ul><ul><li>Investors could invest in high yielding government paper – why invest in illiquid high risk instruments? </li></ul><ul><li>Scarce pool of experienced v/c managers </li></ul><ul><li>Poor exit environment – small, illiquid stock exchanges - and lack of upside potential </li></ul>
    13. 13. Building a Venture Capital Industry - The Goals <ul><li>Increase the pool of local v/c managers with track record </li></ul><ul><li>Develop “success-stories”, “best-practices”, new locally-based models, market standards and benchmarks </li></ul><ul><li>Attract private and institutional investors by demonstrating potential </li></ul><ul><li>Raise awareness and v/c culture among businessmen and governments </li></ul><ul><li>Improve regulatory environment </li></ul>
    14. 14. Building a Venture Capital Industry – Steps Taken <ul><li>A large portfolio of targeted v/c investments looking for strong demonstration effects – 7 funds in Brazil, 6 in Mexico, 9 regional vehicles, rest are country funds throughout LAC </li></ul><ul><li>An increasing number of grant projects targeting structural and regulatory barriers </li></ul><ul><li>Raising awareness among governments and key-players – conferences Mexico, Brazil, Argentina </li></ul><ul><li>Disseminating “best-practices” and lessons-learned </li></ul>
    15. 15. Bridging the gap between formal capital markets and the sector ? <ul><li>Closing the financial cycle by providing seed capital for the future LAC “winners” </li></ul><ul><li>Providing the needed critical mass of v/c funds and managers to attract larger players </li></ul><ul><li>Helping to put in place a more conducive regulatory environment </li></ul><ul><li>Helping to develop new vehicles and instruments – SBIC type models, quasi-equity finance, etc. </li></ul>
    16. 16. Building a Venture Capital Industry - FINEP Case Study <ul><li>Brazil – Early 1990s </li></ul><ul><li>v/c industry incipient </li></ul><ul><li>Huge unmet demand </li></ul><ul><li>No intermediaries to assist entrepreneurs </li></ul><ul><li>Very few investors </li></ul><ul><li>No organized market </li></ul>
    17. 17. Building a Venture Capital Industry - FINEP Case Study (Cont’d) <ul><li>Government paper paid very high rates </li></ul><ul><li>No experienced v/c managers </li></ul><ul><li>Overly regulated legal vehicle </li></ul><ul><li>Poor exit environment – small, illiquid stock exchanges </li></ul><ul><li>Poor protections for minority investors </li></ul>
    18. 18. Building a Venture Capital Industry - Steps taken by MIF and its partners <ul><li>Finep/Sebrae/MIF/private participants signed an agreement to co-invest in new venture vehicles – a “funds incubator” </li></ul><ul><li>Finep Venture Capital Web portal to provide entrepreneurs/managers with market info </li></ul><ul><li>Conduct a series of Venture forums for matchmaking </li></ul><ul><li>Provide training </li></ul><ul><li>Associate with other investors to document regulatory reforms </li></ul><ul><li>Interface with Bovespa on creation of Nuovo Mercado </li></ul>
    19. 19. Modest but important results since program began one year ago <ul><li>Five new funds created out of thirty three proposals – MIF committed $7mm. </li></ul><ul><li>Funds had support of MIF, SEBRAE, FINEP but also at least 20 private investors. </li></ul><ul><li>Awareness program hugely successful – MIF provided $1.2mm </li></ul><ul><li>Joint due diligence has resulted in a cohesive approach to recommending reforms in local fund legislation . </li></ul>
    20. 20. Remittances – channeling informal capital flows <ul><li>IDB estimates that $33 billion in remittances flow into Latin America and the Caribbean from international migrant workers </li></ul><ul><li>Increasing opportunities for financial institutions to tap into these resources </li></ul><ul><li>Opportunities for securitization of such funds – Mexico and El Salvador </li></ul><ul><li>MIF goals – improve consumer welfare by reducing transaction costs and channeling funds into formal system. . </li></ul>
    21. 21. Remittances – MIF activities <ul><li>Research and awareness </li></ul><ul><li>Brokering new relationships – Japan/Brazil; Ecuador/Spain; US/El Salvador; etc. </li></ul><ul><li>Promoting new financial products, use of technology and expanding outreach. </li></ul>