Trends in Microfinance
Investment
Microfinance Club of New York
April 12, 2012
Basic definitions
2
Microfinance
Microfinance is the provision of basic financial services such as microcredit,
savings, money transfer services and micro-insurance to low-income
individuals or to those who have limited access to financial services.
Transaction amounts are comparatively small.
Microcredit
Microcredits are loans for productive purposes, whose lending decision is not
predominantly based on collateral and are small in size (less than 2x GDP per
capita).
Microfinance
Institution (MFI)
An MFI is an organization that provides microfinance services and whose
lending operations are mainly microcredit.
Microfinance
Investment Vehicle
(MIV)
MIVs, also known as microfinance funds, are entities that invest in MFIs. For
a fund to qualify as an MIV, it must meet the following criteria:
1) The investment vehicle must be an independent legal entity (i.e.
independent of the MFI being funded);
2) Multiple private investors must be present, or the vehicle must be open to
such investors; and
3) The investment vehicle must focus on investing in microfinance
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3
Foreign Investment Flow
Investor /
capital
markets
MIV
MFI
Micro
Entrepreneur
MicroRate Vision
Promote the flow of funds from capital markets to microfinance by
increasing transparency and growth in the global microfinance
community.
© Copyright MicroRate 2012
4
MIV Growth
(in USD millions)
$7,000
$6,452
$6,023
$6,000
$4,931
$5,000
$4,781
$4,246
$3,864
$4,000
$3,814
$3,053
$3,000
$1,964
$2,000
$1,476
$1,195
$1,000
$705
$2005
2006
2007
Total MIV assets (US$)
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2008
2009
Microfinance Portfolio (US$)
2010
5
Foreign Funding of Microfinance
Private Investors
Public Investors
42%
45%
46%
55%
51%
49%
51%
49%
2005
2006
58%
54%
55%
46%
2007
2008
2009
2010
Source: CGAP
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6
Regional Distribution of MF Assets
$6,000
Other
$5,000
Middle East &
North Africa
North America
$4,000
Sub-Saharan Africa
$3,000
East Asia & Pacific
$2,000
South Asia
$1,000
Latin America &
Caribbean
Europe & Central
Asia
$-
2005
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2006
2007
2008
2009
2010
7
Growth in MIVs
120
102
100
88
80
70
74
61
55
60
40
37
20
0
2004
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2005
2006
2007
2008
2009
2010
8
MIV Clients
Luminis-listed MIVs
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Accion International*
Advans SA*
Alterfin cvba
ASN-Novib Fund
Bamboo Finance*
BlueOrchard Finance SA*
Calvert Social Investment
Foundation*
Caspian Adviors*
Consorzio Etimos*
Deutsche Bank*
Dual Return Funds*
DWM Asset Management*
European Fund for Southeast
Europe*
Grassroots Capital*
Gray Ghost Ventures*
Impulse Microfinance
Investment Fund
Incofin cvso
KCD Mikrofinanzfonds*
Luxembourg Microfinance
Development Fund
Locfund
Microvest I, LP
MicroVest Short Duration
Fund
© Copyright MicroRate 2012
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
MicroVest+ Plus Fund
responsAbility Global
Microfinance Fund FCP
responsAbility SICAV Microfinance Leaders Fund
responsAbility SICAV - Mikrofinanz Fond
Rural Impulse Fund
Rural Impulse Fund II S.A.
Selectum SICAV SIF*
Shorecap*
SNS Institutional Microfinance
Fund I
SNS Institutional Microfinance
Fund II
Triodos Microfinance Fund
Minlam Microfinance Fund*
TreeTops Capital*
Wallberg Global Microfinance
Fund*
MFX counterparties
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
* MicroRate and MIV are currently in
discussions
17.
18.
19.
20.
ASA International
ASN-Novib Fund
Alterfin cvba
Banco Solidario S.A.
BlueOrchard Foreign
Exchange Fund
BlueOrchard Microfinance
Growth Facility
Calvert Social Investment
Foundation
Community Needs, LLC
Deutsche Bank Micro Credit
Development Fund
Developpement International
Desjardins
Dexia Micro-Credit Fund
FEFISOL
FINCA International
FINCA Microfinance Holdings
Gawa Microfinance Fund I
Impulse Microfinance
Investment Fund
Incofin cvso
LOCFUND
Luxembourg Microfinance
Development Fund
MicroCredit Enterprises
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
Microvest I, LP
MicroVest Short Duration
Fund
MicroVest+ Plus Fund
Opportunity International
responsAbility Global
Microfinance Fund FCP
responsAbility SICAV Microfinance Leaders Fund
responsAbility SICAV - Mikrofinanz Fond
responsAbility SICAV Financial Inclusion Fund
Root Capital
Rural Impulse Fund
Rural Impulse Fund II S.A.
Solidarite Internationale pour
le Developpement et
l’Investissement
Stichting Hivos-Triodos Fonds
Stichting Triodos-Doen
Triodos Fair Share Fund
Triodos Microfinance Fund
Unitus Incorporated
9
MIV Peer Groups
Securities
type
Debt
Hybrid
Equity
Other considerations:
Tier 1
Tier 2
Tier 3
MFI
maturity
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1. Closed vs. open-ended
2. Leveraged vs. unleveraged
10
2010 Key MIV Metrics
Best
Average
Worst
1-year return
39.1%
6.5%
-0.4%
3-year return (annualized)
24.4%
7.8%
2.0%
5-year return (annualized)
10.4%
6.4%
3.2%
1.8%
3.9%
11.5%
10.0%
3.1%
-10.4%
11 months
26 months
51 months
Portfolio quality (weighted average)
α-
β
β-
Sovereign risk (weighted average)
BB
BB-
B
-
1.6x
38.3x
6.4
4.4
2.1
11
4
1
Total expense ratio
Return on assets
Loan duration (weighted average)
Leverage
Social dollar index
Portfolio manager tenure (years as PM @ MIV)
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MIV metrics

Methodology to track and compare MIVs: PRSM™
PERFORMANCE
• Performance ratio
analytics
• NAV returns
• Comparisons to peer
group and target
return
• dividend, coupon
yields
• Earnings analysis
• Expense metrics
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RISK
• Portfolio quality
• Sovereign risk
• Credit risk
• Concentration risk
• Asset-liability
management
• liquidity
• Market risk
• currency risk
• interest rate risk
• Leverage
• Structural risks
SOCIAL
• Social mission
definition
• Corporate responsibility
• adherence to ESG
principles, CPP, PIIF,
etc.
• Social performance
management
• linkage of mission to
investment process
• tracking &
enforcement
• Social results – outputs
and outcomes
MANAGEMENT
• Portfolio manager
experience, track
record
• individual
• firm
• Governance and
internal controls
• Investment process
• Risk management
MIV Data & Results
2011 preliminary findings

12
Performance

Results still coming in for 2011, but initial indications suggest improvements
over 2010 due to increased demand from MFIs (higher asset utilization) and
lower cash balances.

Competition from local banks still hindering pricing, especially with the rise
of local currency funding, the cost of which eats into the MIV’s margin.

Many MIVs looking outside microfinance to find returns, with much focus on
SME finance (pre-export, trade, fair-trade, agriculture, factoring, etc.).
© Copyright MicroRate 2012
13
Diversity of MIVs
MIV #2
MIV #1
Regional Diversification
7%
18%
MIV #3
Regional Diversification
Middle East & North Africa
Regional Diversification
5%4% 6%
Sub-Saharan Africa
25%
28%
South Asia
42%
East Asia & Pacific
33%
6%
11%
58%
Latin America & Caribbean
55%
Europe & Central Asia
Other
MFI Maturity
MFI Maturity
MFI Maturity
Most Mature
Most Mature
Most Mature
Mature
Mature
Mature
Least Mature
Least Mature
Least Mature
20%
40%
60%
0%
80%
40%
60%
80%
0%
20%
60%
40%
20%
0%
Low
40%
60%
80%
Percent of Portfolio
Credit Risk
Percent of Portfolio
Percent of Portfolio
Credit Risk
High
Moderate
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2012 Risk
20%
Percent of Portfolio
Percent of Portfolio
Credit Risk
60%
Percent of Portfolio
0%
40%
20%
0%
60%
40%
20%
0%
High
Moderate
Risk
Low
High
Moderate
Risk
Low
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United States
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info@microrate.com
Tel. 703-243-5340
Fax: 703-243-7380
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