IAMFI Events
This page provides information on IAMFI's past and upcoming events.
2010 IAMFI Events
IAMFI’s upcoming events include, among others, webinars, networking events and IAMFI Investor Network Meetings.
The following calendar presents a list of events that IAMFI will be hosting or co-hosting in 2010. Please check back frequently for new events and information. Email us at info@iamfi.com if you are interested in attending any of these events.
| Event | Date | Location | Host | Type of Event |
| IAMFI MF Lenders Working Group Meeting | January 28 | New York, NY | IAMFI- Morgan Stanley | Meeting/Teleconference |
| IAMFI Connect | March 16 | Oslo, Norway | IAMFI- Norwegian Microfinance Initiative- Formuesforvaltning | Presentation |
| IAMFI MF Lenders Working Group Stakeholder Forum | March 23 | New York, NY | IAMFI- Morgan Stanley- WWB | Meeting/Webinar |
| "Microfinance Institutions in Bosnia, Colombia and Nicaragua: what key trends mean for the future?" | April 15 | Virtual | IAMFI- Fitch Ratings | Webinar |
| Investor Network Meeting | April 22 | San Francisco, CA | IAMFI- Omidyar Network | Meeting |
| All Eyes on Asset Quality: Microfinance Global Valuation Survey 2010 | May 4 | Virtual | IAMFI- J.P. Morgan- CGAP | Webinar |
| IAMFI Connect | May 10 | Amsterdam, Netherlands | IAMFI- Fitch Ratings-DOEN Foundation | Meeting |
| IAMFI MF Lenders Working Group Stakeholder Forum | May 12 | Amsterdam, Netherlands | IAMFI- Morgan Stanley-Hanson Wade | Meeting |
| IAMFI Connect | May 13 | London, England | IAMFI- Fitch Ratings- Co-operative Financial Services | Meeting/Webinar |
| Investor Network Meeting | June 14 | Ontario, Canada | IAMFI- Sarona Fund- Social Investment Organization | Meeting |
| Social Performance Measurement Survey Findings | June 22 | Virtual | IAMFI- Moody's | Webinar |
| Evaluation and Development of MFIs’ Corporate Governance | July 6 | Virtual | IAMFI - Microfinanza Rating | Webinar |
| Wealth Advisors Round Table | August | New York, NY | IAMFI | Meeting/Webinar |
| Pension Fund Managers Forum | September | New York, NY | IAMFI | Webinar |
Third Party Events
To date, IAMFI has confirmed its participation as speaker or moderator in the following events in 2010.
| IAMFI Presentations | Date | Location | Host |
| Microfinance and Sustainable Development: The Investment Opportunity Harnessing Market Forces to Catalyze Poverty Alleviation & Human Development | January 25-27 | New York, NY | The International Quality and Productivity Center, The Microfinance Club of New York, and The Wall Street Microfinance Alliance |
| International Transaction Clinic | February 2 | Ann Harbor, Michigan | University of Michigan Law |
| Microfinance Investment Summit-Geneva Edition | March 10-11 | Geneva, Switzerland | C5 |
| 8th Annual WWB Microfinance and the Capital Markets Conference | March 23-24 | New York, NY | Women's World Banking - J.P. Morgan |
| Omidyar Network Executive Forum | April 27-29 | Redwood City, CA | Omidyar Network Executive Forum |
| Micro Financial Services World | May 10-11 | Amsterdam, Netherlands | Hanson Wade - Unitus |
| Global Microfinance Investment Congress | May 17-18 | New York, NY | PlaNet Finance |
| Canadian Responsible Investment Conference | June 14-16 | Toronto, Canada | Social Investment Organization |
| Social Performance Task Force | June 30 - July 1 | Bern, Switzerland | CGAP, Ford Foundation |
| October 6-7 | London, England | C5 | |
| Investment and Innovation in Microfinance | October 26-27 | Washington D.C | Hanson Wade |
Moody's - IAMFI Social Performance Survey Findings Webinar: Event Summary
Virtual, June 22, 2010
Moody’s and IAMFI co-hosted a Webinar to discuss early findings on how microfinance market participants evaluate the social performance attributes of microfinance institutions. Jody Rasch, Senior Vice President of Moody’s, presented the findings and Joan Trant, Executive Director of IAMFI, facilitated the question and answer session.
While the data are preliminary and not yet representative of the microfinance sector, a surprising early finding is the negligible difference in the relative rankings between socially-focused and commercially-focused investors. In response, one participant remarked, “It is reassuring that even with a financial emphasis it is still possible to see a social mission and to see how there is a close overlap between social and operational performance.”
Joan Trant agreed, highlighting that consensus on the key social rating variables will facilitate developing a standardized, widely accepted rating methodology among investors, despite their social and financial motivations.
Moody’s is seeking feedback from a broad array of microfinance participants, and has disseminated a questionnaire to about 60 industry members including not-for-profit organizations, development agencies (DFIs), microfinance investment vehicles (MIVs) and MFIs. The questionnaire is designed to solicit input on MFI social performance variables such as leadership/strategy, client relationship and measurement. It used variables that were identified by various market participants including institutions specialized in social performance and microfinance, including the Social Performance Taskforce, Deutsche Bank, Women’s World Banking, BlueOrchard, Imp-Act, Grameen Foundation and the MIX. IAMFI enhanced the survey, adding several questions designed to gather additional input on how different investor profiles might affect the ranking of variables and sent it to 300 investors.
Thus far 47 institutions have responded.
About 30 survey respondents as well as other industry participants took part in the Webinar and Question and Answer session following the presentation.
IAMFI encourages those who have not completed the questionnaire to do so. You may contact Jody Rasch directly at jody.rasch@moodys.com, or if you are an investor and prefer your participation to be confidential, you may request the questionnaire from kcooke@iamfi.com. Broad participation will ensure that the social rating methodology more accurately reflects sector’s priorities. Please return your completed questionnaire by August 20th.
IAMFI Investor Network Meeting Event Summary
Toronto, Canada, June 14th, 11:30 AM – 2:00 PM
Scott Budde, Gerhard Pries, and Ian Bragg IAMFI Investor Network meeting in session with Joan Trant
IAMFI hosts IAMFI Investor Network meetings frequently in different venues to create the forum for prospective investors to hear presentations by microfinance investment vehicles (MIVs) on commercial investment opportunities and to network with like-minded peers. For its Toronto meeting, the Canadian Social Investment Organization (SIO) invited IAMFI to present to its Pension Fund Roundtable as a pre-event to the annual Canadian Responsible Investment Conference. Sarona Asset Management (based in Waterloo, Ontario) and the SIO co-sponsored the meeting.
IAMFI invited two MIVs to present: Minlam Asset Management and Sarona Asset Management. Thirteen guests attended, including 10 Limited Partner investors, comprising wealth managers, investment firms, pension funds and members of the press.
Joan Trant, IAMFI Executive Director, opened the meeting by providing an overview of microfinance on the ground. The presentation described how low-income entrepreneurs manage their financial needs, including working capital loans to fund their businesses. Scott Budde, Managing Director of TIAA-CREF’s Social & Community Investing department and IAMFI Board Chair, gave an introduction to commercial investment in microfinance. Scott oversees TIAA-CREF’s $100 million Global Microfinance Investment Program, which invests in microfinance institutions worldwide.
The MIV presentations followed. IAMFI Investor Network meetings use the venture capital "pitch" model, in which each fund manager has 15 minutes to present its fund followed by 5-10 minutes of questions and answers.
Due to a flight delay, Minlam’s Chief Executive Officer, Michael Parker, was unable to pitch the Minlam Microfinance Fund. Joan stepped in, presenting Minlam’s investment strategy to provide local currency loans to emerging market financial institutions that serve small businesses, microenterprises and low-income clients.
Gerhard Pries, President of Sarona Asset Management, presented the Sarona Frontier Markets Fund I LF. It employs a fund of funds strategy, investing in small- to mid-market private equity funds in emerging and developing country markets.
Meeting participants had the opportunity to ask questions and make comments. Some of the discussion points follow:
Are these funds aiming to get a market rate of return?
Yes. These funds have goals of reasonable, long-term, sustainable returns.
Where do you draw the line between consumer lending and microfinance?
The principal difference between consumer lending and microfinance is that microfinance loans provide working capital for microentrepreneurs’ businesses. Borrowers use the loan proceeds to buy tools, raw materials or wholesale goods to sell at the retail level, and they use business revenues to repay the loans. When borrowers buy non-income generating items like a television, household indebtedness rises because there is no off-setting revenue. Currently, several organizations are working on guidelines to protect borrowers from overindebtedness. A good MIV manager will evaluate a microfinance institution’s (MFI) loan portfolio and will avoid investing in MFIs that make consumption rather than microfinance loans.
There is talk about government loans distorting the market. Is there truth to this?
The effects of government funding on commercial microfinance varies by country and MFI. Development financial institutions (DFIs) were early drivers of microfinance investment, helping prove the case for the sector’s viability. By 2008, private sector investment began to outpace DFI funding, and both sources of capital have supported the rapid growth of MFIs. In many cases, DFIs act in productive collaboration with private investors, either by investing in lesser developed countries and in the riskier tranches of structured vehicles, helping to stimulate private sector investment. In other cases, however, DFIs provide below-market pricing for capital, and this creates a “crowding out” effect for private investors.
Can you discuss the stability and volatility of a microfinance investment?
It is hard to gauge microfinance investment volatility; it differs from a publicly traded investment due to the absence of a secondary market for microfinance instruments. As a result, microfinance is largely a buy and hold strategy, and microfinance instruments are not marked to market, giving the appearance of stability in a portfolio. In addition, commercial microfinance investing began in 2005 and therefore has a very short track record. However, two studies comparing microfinance to mainstream investments indicate that microfinance may offer lower volatility and higher returns to a traditional portfolio. For example, one study created conservative, balanced, and aggressive model portfolios using market indexes as proxies; substituting a 5% allocation to microfinance for various asset classes increased returns and decreased volatility in all portfolios except when hedge funds were substituted for microfinance. This study used data only through mid-2008 and does not reflect how portfolios have performed during and after the global financial crisis. IAMFI is seeking to repeat the study to determine how microfinance allocation would affect the returns and volatility of model portfolios post-crisis.
The meeting format included lunch and networking among investors and with presenters. IAMFI collected feedback on the meeting, and, significantly, all respondents showed interest in learning about one or more of the two MIVs, and in learning more about other IAMFI member MIVs.
IAMFI is grateful to Sarona Asset Management, Minlam Asset Management, SIO and meeting participants for facilitating this opportunity to discuss microfinance investment goals, hurdles and opportunities. The open dialogue offered valuable insights for both current and prospective investors interested in impact investing for financial and social returns.
All Eyes On Asset Quality: Microfinance Global Valuation Survey 2010
Virtual, May 4, 2010
IAMFI hosted a Webinar to review and discuss the findings from the recent CGAP- J.P. Morgan study, All Eyes On Asset Quality: Microfinance Global Valuation Survey 2010. Christoph Knieding, of the Consultative Group to assist the Poorest (CGAP), and Frederic de Mariz, of J.P. Morgan, presented the study’s findings and offered insight on recent microfinance equity valuation, especially in light of the global financial crisis.
The study analyzed and compared two data sets. The first is a sample of 200 microfinance institution (MFI) private equity transactions between 2005 and 2009. It represents the largest such data set gathered to date (compared to 144 transactions in last year’s edition of the report). The second data set tracks eight publicly traded lower-income financial institutions (LIFIs) in developing countries. It is important to note that the MFI data sets are different for the 2005-2008 and 2009 periods. The former used figures from the Microfinance Information Exchange (MIX), while the 2009 analysis uses Symbiotics’ Sym50 index as a proxy. The Sym50 does not provide the same breadth of MFI data in terms of region, size and maturity of MFIs. Transaction data include cross-border deals only and rely on MFI and investor self-reporting without independent verification.
Christoph began by discussing how the difficult economic environment has affected microfinance equity valuations. Starting in 2009, MFI portfolio delinquency levels saw a steep increase, with loans past due over 30 days (PaR30) jumping from a median of 2.2% to 4.7%. The drop in profitability during this time was also notable, with the median return on equity (ROE) of nearly 18% at the end of 2008 falling to 6% by May 2009. The drop was due primarily to foreign currency losses and an increase in funding costs.
However, Christoph highlighted how this deterioration was far from uniform, for while Central America, Eastern Europe, and Central Asia were hit especially hard, most countries in South America and South Asia witnessed relatively no impact. He also noted how some countries (such as Nicaragua and Bosnia and Herzegovina) have experienced severe delinquency crises but for reasons other that the global downturn.
Since June 2009, delinquency has moderated and profitability levels have stabilized, at 4% for PaR30 and 10% for ROE. Most MFIs have also maintained stable reserve and capitalization levels, with equity ratios staying at 18-20% over the past two years. The study concluded that reserves are ample for current levels of default and that many MFIs have improved underwriting policies and procedures to reduce future defaults.
The study’s statistics indicate that multiples are increasing across all regions compared to the 2005-2008 period. With median historical valuations of 5x book value, Asian MFIs have the highest multiples, although this is due almost exclusively to transactions in India, which account for 80% of transaction volume. Eastern Europe and Central Asia (ECA) follow, with P/BV at 2.2x. This valuation level is surprising given the high degree of economic crisis in the region, and it reflects the superior quality of MFIs in the study sample, which proved quite resilient. MFIs in Latin America and the Caribbean (LCA) exhibited valuation multiples at 1.3x book value. The Africa region did not generate enough transactions in 2009 to produce a meaningful benchmark. As forward multiples remained significantly below historical multiples in 2009, this reflects a positive outlook on MFI earnings prospects. Extracting India from aggregated data, 2009 historical and expected median P/BV multiples are 1.7x and 1.3x, respectively (2.1x and 1.4x including India).
Expected price-to-earnings multiples hit a peak of 13x (8.7x ex-India) in 2009, with Asia and ECA showing stellar growth and Latin America dropping from about 7x to about 5x. Asia’s expected P/E reflects its compound annual growth rate of 60%, outpacing all other regions. the main drivers of higer P/E ratios include: large transaction size, net income growth and relative youth of the MFI.
The analysis also indicates that higher delinquency rates result in a hefty discount on valuation multiples, with the regression model showing a strong negative correlation between PaR30 and expected P/E ratios. However, the study found no significant correlation between price to book (P/BV) multiples and ROE, suggesting an immature market and the lack of consensus on whether to value current earnings or the potential for future earnings. In mature markets, the P/BV multiple paid for a financial institution depends on the profitability of the institution as measured by its ROE.
Frederic went on to discuss valuation trends for lower-income financial institutions (LIFIs) that trade in the public markets of developing countries. While not a prefect proxy, the LIFI index offers interesting comparables to microfinance equity valuation since they operate in the same market. The LIFI index was altered from the previous year’s study by adding two LIFIs, First Cash Financial and Banco Panamericano, in order to expand its scope. The LIFI Index outperformed global banks by 79% since the initial downturn and, unlike the MSCI World Financials and MSCI EM Banks indices, it is close to its pre-crisis level. However, it still trades at a 13-23% discount to mainstream banks.
This research indicates that while the effects of the economic downturn will continue to be felt, most MFIs will likely continue to grow, although at a slower rate and benefiting from improved risk management. The upcoming IPO of SKS, the largest MFI in India, in 2010 should set the stage for future IPOs in the sector, and the overall outlook for equity investments in microfinance remains positive.
Over 20 attendees representing every aspect of the microfinance industry participated in the Webinar and engaged in a Question and Answer session following the presentation, summarized below:
What were the key characteristics in determining the LIFI index?
One of the problems with the LIFI index from 2009 was that it was too small. In attempt to correct for this, the study added Fast Cash Financial and Banco Panamericano. As this was the first attempt to track immature markets, the index does have significant shortcomings. The main issue with this index is that there are no perfect peers as MFIs are very divergent. Differences in business models, working capital, and governance all affect the uniformity of this index.
What are the necessary characteristics for a successful MFI IPO?
While sample IPOs are too small to be uniformly representative, it seems that good governance, transparency, and management have proven leading indicators of successful IPOs during the global financial crisis. SKS, expected to float in 60-90 days, highlights certain success factors, including highly motivated management, the ability to attract both MIV and mainstream investment, and the ability to absorb capital and keep increasing operating efficiency. However, an IPO is not the only exit option; for example in recent transactions large banks have acquired MFIs. The capital markets are more complicated due to European debt problems, which flow down to emerging markets and pose challenges for MFIs to go public.
What are the differences in valuations between consumer lenders versus development MFI lenders?
Consumer lenders trade at an even lower discounted rate than the LIFI index and other development-oriented lenders, due to a higher nonperforming loan (NPL) ratio. However, there are no strong conclusions yet on the impact of development lenders’ social focus compared with consumer lenders.
What is the comparison of B/PV ratio when considering tangible assets?
Because MFIs don’t have a lot of tangible assets, this relationship was not examined in this study.
Is there a concentration in Tier 1 MFI investments, and is this a concern for the future of equity investments?
In 2008, microfinance registered 64 private equity transactions equaling $160 million and in 2009 the number of transactions fell to 30, yet total asset volume increased to $185 million. The increase in asset volume is largely due to the sale of Edyficar, a large Peruvian MFI. MFI investors continue to focus on Tier 1 investments, and that “bidding up” partly explains the high multiples despite the slowdown in MFI growth and increased loan portfolio risk.
Are there other reasons for such high multiples despite the recent global financial crisis?
One of the main reasons such high multiples remain even with decreases in ROE is due to an improvement of governance, MFI management capacity and transparency. The continuing investment in Indian MFIs also drives multiples up. However, strong ROE relies on high levels of leverage, and MFIs have decreased leverage as a result of the downturn. The average ROE is likely to drop, and will not justify the current multiples.
What are the differences in using the RAROC (risk adjusted return on capital instead of the ROE to examine the relationship between multiples and company value?
The current study did not consider the RAROC, although it would be interesting to explore this measure in future studies. As stated before, there is little correlation when using the ROE as a measurement tool between multiples and company value.
IAMFI is grateful to Christoph and Frederic for sharing the key findings of this microfinance valuation study. For more information, view the presentation slides and the full study: All Eyes On Asset Quality: Microfinance Global Valuation Survey 2010. For questions on specific details not covered in the Webinar, you may contact Frederic de Mariz at Frederic.de.mariz@jpmchase.com or Christoph Knieding at ckneiding@worldbank.org
IAMFI Events 2009
IAMFI’s events include, among others, webinars, networking events and IAMFI Investors Network meetings.
The following calendar presents a list of events that IAMFI hosted or co-hosted in 2009.
- IAMFI-CGAP-J.P.Morgan Webinar - Microfinance Equity Valuation: Past and Present
- IAMFI-Intellecap Microfinance Private Equity Investment Forum
- IAMFI-S&P Teleconference - Microfinance Institutions: Changing Strategies for Changing Times
- IAMFI Webinar: Foreign Currency Considerations in Cross Border Microfinance Investment
- IAMFI Networking Lunch – New York
- IAMFI-Fitch Ratings Investor Teleconference
- Microfinance Investors Reception
- Advancing Microfinance for Market-Driven Investors
| Event | Date | Location | Host | Type of Event |
| Changing Strategies for Changing Times | February 24 | Virtual | IAMFI - Standard & Poor's | Teleconference |
| IAMFI Connect: Debt Default Study/Networking Lunch | May 5 | Amsterdam, Netherlands | IAMFI - DOEN | Presentation/Lunch |
| IAMFI Connect: Debt Default Study/Networking Lunch | May 6 | London, UK | IAMFI - Omidyar Network | Presentation/Lunch |
| IAMFI-Intellecap Microfinance Private Equity Investment Forum | May 21 | New York, NY | IAMFI - Intellecap | Breakfast - Work Session |
| Microfinance Equity Valuation: Past and Present | May 27 | Virtual | IAMFI - CGAP - J.P.Morgan | Webinar |
| Microfinance: Testing its Resilience to the Global Financial Crisis | June 9 | Virtual | IAMFI - Fitch Ratings | Teleconference |
| IAMFI Connect: Bay Area Microfinance Investors Event | June 17 | San Francisco, CA | IAMFI | Meeting/Reception |
| IAMFI Connect: Debt Default Study/Networking Lunch | July 14 | Boston, MA | IAMFI - Tufts Microfinance Fund | Presentation/Lunch |
| IAMFI Investor Network Meeting | September 29 | New York, NY | IAMFI | Meeting |
| Take Action! Summit | October 5-7 | Redwood City, CA | Correlation Consulting | Presentation |
| IAMFI Microfinance Lenders Working Group Launch | October 30 | New York, NY | IAMFI - Morgan Stanley | Meeting/Teleconference |
| IAMFI Annual Members Meeting | November 12 | New York, NY | IAMFI - J.P. Morgan | Meeting/Teleconference |
| IAMFI Connect: Networking Lunch | November 12 | New York, NY | IAMFI - J.P. Morgan | Lunch |
| Microfinance Webinar | December | New York, NY | IAMFI | Webinar |
| YEAR END FORUM for Private Investors | December 10 | New York, NY | Institute for Private Investors, Inc. | Presentation |
Third Party Events
To date, IAMFI has confirmed its participation as speaker or moderator in the following events in 2009.
| IAMFI Presentations | Date | Location | Host | Type of Event | |
|
February 9 | New York, NY | New York University | Class | |
| University of Chicago Graduate School of Business Alumni Meeting | March 5 | New York, NY | University of Chicago | Presentation | |
| 7th Annual WWB Microfinance and the Capital Markets Conference | April 30 - May 1 | New York, NY | Women's World Banking and J.P.Morgan | Panel | |
| Global Microfinance Investment Congress | May 18-20 | New York, NY | American Conference Institute and PlaNet Finance | Panel | |
| Microfinance 2.0: Cutting-Edge Silicon Valley Solutions to Thrive in the Downturn | June 15-17 | San Francisco, CA | IQPC | Panel | |
| Microfinance for Institutional Investors | September 21-22 | Washington DC | Hanson Wade | Panel | |
| Take Action Symposium | October 5-7 | Redwood City, CA | Correlation Consulting | Presentation | |
| YEAR END FORUM for Private Investors | December 10 | New York, NY | Institute for Private Investors, Inc. | Presentation |
IAMFI Investor Network Meeting Event Summary
TIAA-CREF’s office, New York, on September 29, 2009, 6:00pm - 8:55pm
The goal of the IAMFI Investor Network Meeting was to create the forum in which prospective investors could hear presentations by microfinance investment vehicles (MIVs) on potential investment opportunities. IAMFI likewise sought to offer investors a venue for networking with like-minded peers. IAMFI invited two member MIVs and one non-member to present. The non-member could either pay to present or join; IAMFI achieved its objective to sign up the non-member, Grassroots Capital Management, as a new member.
Twenty-six guests Limited Partner responded and 19 attended, comprising high net worth individuals, wealth managers, venture capital firms and angel capital investors.
Scott Budde and Joan Trant made opening remarks, followed by MIV presentations:
- Ann Miles, managing director of BlueOrchard, offering a debt investment option with monthly liquidity.
- Michael Parker, chief executive officer and co-founder of Minlam Asset Management, accompanied by colleague Ron Dadina, presenting their local currency debt fund.
- Christine Killorin, chief financial officer of Grassroots Capital Management, accompanied by Anna Kanze, presenting the Grassroots Microfinance Equity and Prospero Microfinanzas Funds, both 100% equity and the latter focusing on Latin America/Caribbean.
- After each presentation, investors had the opportunity to ask questions and make comments.
Following the MIV presentations, Joan Trant opened up the floor for feedback. One attendee asked about the inputs for successful microfinance investing. An experienced investor responded, “It’s all about good management, that’s the key to a successful MFI.”
Two investors agreed that investors choose microfinance not so much for the returns but for the social impact. One, an investor in the Dignity Fund, stated, “People can easily give their money to charities. We’re not charity. We can offer a double or triple bottom line - you sell it to people who want a social impact.” The other said, “I’m here to learn more, and to broaden my clients’ spectrum. I’m trying to focus on people who have passion for social impact.” A third prosective investor agreed by simply stating, “Social impact is fundamental.”
Following the discussion, guests stayed for socializing, food and drinks. Based on the new member sign-up, attendee turnout and feedback on the evaluation forms, below, IAMFI’s first Investor Network Meeting achieved its goals, and IAMFI will host additional IAMFI Investor Network Meetings in the future. IAMFI also collected feedback on the three MIVs. Significantly, seven responses showed interest in learning about one or more of the three MIVs, and four attendees indicated a possible interest in making an investment.
IAMFI-CGAP-J.P.Morgan Webinar - Microfinance Equity Valuation: Past and Present
Virtual, May 27, 2009
As follow-up to the IAMFI–Intellecap Microfinance Private Equity Investment Forum, IAMFI hosted a Webinar to review and discuss the findings from the recent CGAP - J.P.Morgan study, Shedding Light on Microfinance Valuation: Past and Present. Xavier Reille, of the Consultative Group to assist the Poorest (CGAP), and Frederic de Mariz, of J.P.Morgan, presented the study’s findings and offered insights on how equity valuation is responding to the global economic crisis.
The CGAP – JPM study analyzed the feedback of its confidential survey that gathered data on 144 private equity microfinance transactions from January 2005 through September 2008. The study compared microfinance with traditional banking, offered a technical overview of valuation methods, provided data on microfinance valuations and evaluated the performance of 10 publicly listed Low Income Finance Institutions (LIFIs), including microfinance institutions (MFIs).
Frederic began by assessing key differences between MFIs and traditional banks, highlighting the following characteristics of MFIs:
- Double bottom line
- High net interest margins
- High asset quality
- High operating costs
- Longer term funding
The study determined that the unique business model employed by MFIs requires a different approach to valuation.
Xavier next presented valuations of private equity microfinance transactions that took place during 2005-08. Median historical price/earnings (P/E) ratios ranged between 7.2-7.9x and historical price/book value (P/BV) between 1.3-1.7x. Figures varied widely by region. India was a clear outlier trading at 7x BV, due to the local regulatory environment and investment activity by large hedge funds. Africa posed another interesting case: despite an average -3% return on equity, the region’s MFIs traded within the industry average, at 1.5x P/BV. The analysts hypothesized that this was due to a dearth of MFIs with strong returns and a higher percentage of socially motivated investors entering the market with significant capital.
The study determined that the two valuation drivers with statistical significance were net income growth and deal size. Less influential drivers included 1) savings as a percentage of an MFI’s total assets, 2) leverage (debt/equity), 3) type of investor (Development Finance Institutions, or “DFIs,” generally paid higher prices than more commercial microfinance investment vehicles, or “MIVs”), 4) geography, 5) legal status (banks commanded higher valuations compared to non-regulated financial institutions and nonprofits), 6) asset quality (measured using portfolio at risk over 30 days, or “PAR30”) and 7) efficiency (operating expenses/average loan book).
Interestingly, the data demonstrated no link between profitability and valuation. The study’s analysts ascribed this to the immaturity of the microfinance private equity market and the lack of consensus on MFI valuation. The study’s authors projected that, on average, valuations would decrease in 2009.
Frederic introduced the LIFI index, a market capitalization-weighted index of six listed institutions that provide consumer and microenterprise loans, payments and insurance to low-income populations, but that do not necessarily seek a double bottom line. The six institutions in the LIFI index are: African Bank, Danamon, IPF, Banco Compartamos, Financiera Independencia and BRI (BRI received a one-third weighting of its market capitalization given that about 33% of its loans may qualify as microfinance).
The LIFI index trades at a premium on a P/BV basis compared to traditional banks. From 2003 through May 12, 2009, the LIFI index stood at 472 vs. 65 for traditional banks. This premium has declined considerably since the sector’s peak in November 2007. From September 2008 to May 12, 2009, the LIFI index was 104 vs. 66 for traditional banks. The LIFI index offers interesting comparables to microfinance equity valuation since they operate in the same market.
Regarding the impact of the credit crisis on MFIs, Xavier highlighted the following pressures:
- Funding costs have increased from 300 to 500 basis points, and as high as 700 bps in extreme cases
- Asset quality as measured by PAR30 has deteriorated: 67% of MFIs surveyed indicate an increase in PAR30, although the top 50 MFIs are still below the 5% level considered best practice
- MFIs face potential earnings and capital losses due to dollar strength and the currency mismatch created by hard currency loans; some losses are as high as 70%
- Decreases in remittances will likely affect deposits and clients’ income
Thirty attendees representing every aspect of the microfinance industry participated in the Webinar and engaged in a Question & Answer session following the presentation, which is summarized below:
Why haven’t microfinance equity valuations dropped as much as the study projected?
Expectations in December 2008 for the banking sector and for emerging markets were quite gloomy. MFIs have not been as impacted as much as mainstream banks by the crisis, and analysts now expect a quicker bounce back for emerging market investments. However, Eastern Europe and Central Asia still pose concerns for microfinance investors.
How has commodity price volatility affected microfinance?
Food prices continue to be of concern to MFIs and their clients; despite decreases prices are 35% higher than early 2008.
Is there increasing concern regarding regulatory risk?
Regulatory risk (i.e. legislation imposing interest rate caps) does not appear to be increasing.
What are the expectations for PAR30?
As indicated, PAR30 is a concern given that 67% of MFIs say their clients are having difficulty repaying loans, combined with the drop in remittance flows.
Describe any secondary market transactions and resulting internal rates of return (IRR).
Whereas a primary transaction raises money for the company, a secondary transaction raises money for existing shareholders, allowing them to exit. The most well known secondary transaction was Compartamos in Mexico, raising about US$450mn in a 100% secondary and historic transaction. The proceeds of the operation went to shareholders. Not having the exact IRR available, Frederic affirmed that it was very high.
For LIFI Index, you exclude some banks due to lack of financial forecasts. Why are the forecasts crucial for inclusion in the Index, and do you anticipate being able to include more publicly listed MFIs such as Equity Bank, in order for the index to be more representative?
Finding more benchmarks is the key purpose of the report. Therefore the study authors spent a lot of time on the list of LIFIs, discussing this with colleagues in other emerging markets. The LIFIs had to meet the following requirements: 1) institutions have to target low-income segments, even if they are not offering exclusively working capital loans to microentrepreneurs; 2) data had to be readily available (ideally, on Bloomberg); and 3) the market capitalization and the daily liquidity of the company/stock had to exceed a threshold, because below that, some stocks can have days with no trading, and the stock price is subject to high volatility. If such a stock is up by a high percentage but with no volume, that price may not be very accurate.
For P/BV multiples, forecasts don't really matter, as the book value perspective is more concerned about today's value. However, for P/E multiples, forecasts do matter. It’s more representative to evaluate both types of multiples and not only P/BV for high growth companies, so we narrowed the list to six LIFIs meeting the key requirements.
What is the correlation between P/B valuation and long term expected growth rates?
The correlation between P/BV and earnings growth is indirect. If earnings grow in the future, it is safe to assume that book value will grow as well (possibly less than earnings due to dividends and write offs). Book value growth is directly related to P/BV. If the denominator grows, the numerator (price) has to grow at least at the same pace, for the multiple to be stable.
IAMFI is grateful to Frederic and Xavier for sharing the key findings of the microfinance equity valuation study.
Participants offered the following comments:
“Thanks so much for the webinar this morning and the breakfast meeting last week. They were both very informative and productive.” - Howard Finkelstein, Law Offices of Howard J. Finkelstein
“Very nice job on the webinar!” - Greg Casagrande, SPBD
“Many thanks for the webinar! Very interesting.” - David Gough, Grassroots Capital Management
For more information, please view the CGAP – JPM Webinar slide presentation. You may also view the full study, Microfinance - Shedding Light on Microfinance Equity Valuation: Past and Present. For questions on specific details not covered in the webinar, you may contact Frederic de Mariz of J.P.Morgan (frederic.de.mariz@jpmorgan.com; tel. +55 11 3048 3398), and Xavier Reille of CGAP (xreille@worldbank.org; tel. +33 1 4069 3032).
For additional information on microfinance private equity investment, please read the event summary on the IAMFI – Intellecap Microfinance Private Equity Investment Forum, on May 21, 2009, and the related article, Microfinance Private Equity: Taking the Pulse of an Emerging Investment, co-written by Lindsay Clinton of Intellecap and Joan Trant of IAMFI, which summarizes the survey findings.
IAMFI-Intellecap Microfinance Private Equity Investment Forum
New York, May 21, 2009
In May 2009 the International Association of Microfinance Investors (IAMFI) and Intellecap joined forces to assess current investor views on microfinance private equity investment. Their goals were to understand the risk and return perceptions of microfinance investors, gauge the impact of the global economic crisis on microfinance investing, and evaluate investors’ expectations for the investment class. In this collaboration, IAMFI and Intellecap conducted an online survey in early May, presented the findings at a Forum held on May 21, 2009 in New York, NY and created the venue for equity investors to share perspectives and to network among peers.
The Forum
The IAMFI-Intellecap Microfinance Private Equity Investment Forum had a strong turnout of 40 Limited Partner (LP) investors, General Partner (GP) investors and industry service providers such as wealth advisors, law firms and rating agencies. Many of the participants were survey respondents. Some were experienced microfinance investors while others were beginning their evaluation of the sector. J.P.Morgan, an IAMFI Charter Member, hosted the event at its Manhattan offices. The meeting offered attendees the opportunity to hear the summarized survey feedback from Limited Partner (LP) and General Partner (GP) investors in microfinance equity, presented by Anurag Agrawal, Intellecap Vice President, Investment Banking.
Following questions and comments on the survey, Joan Trant, IAMFI Executive Director, organized a breakout session, dividing the attendees into three groups and suggesting topics for discussion.
In addition, the Forum provided a separate space for LPs and GPs to meet privately and discuss investment goals and options.
Breakout Session Conclusions
The suggested topics for the breakout discussion included: 1) the gap in LPs’ and GPs’ perceptions of microfinance private equity risk and return, 2) the role of development financial institutions (DFIs, the private sector branches of governments that support emerging countries’ growth) in private equity investment, and 3) the discrepancy between LPs’ stated allocation to microfinance and many MIVs’ fundraising shortfalls.
The breakout groups were encouraged to discuss other topics based on their interests. They used the Forum to share insights on regional microfinance environments, the role of governments, agricultural finance, consumption loans, sustainable energy loans, microinsurance, and the recently created Microfinance Enhancement Facility.
After 30 minutes of lively interaction representatives from each breakout team presented summarized comments. Many of these are highlighted below.
There is a gap in knowledge and communications between GPs and LPs. This likely accounts for divergent perceptions of risk and return. Many LP investors in microfinance make a small allocation of their portfolio, and cannot justify conducting lengthy due diligence and monitoring. But the sense that they lack direct knowledge regarding their microfinance investments may make LPs perceive greater risk. GPs would do well to increase feedback to their LP investors on the microfinance sector and their fund’s performance. Those LPs seeking more information should make periodic field visits with their GPs and conduct independent due diligence as required.
Despite “crowding out” concerns, DFIs play an important role in microfinance. DFIs were early investors in microfinance equity, creating opportunities for the private sector to enter the market. DFIs regularly facilitate the exit of private investors, and the DFIs’ continued commitment to the microfinance sector in this turbulent time brings stability and comfort. However, anecdotal comments by private investors indicate that in some instances DFIs continue to offer capital at below-market pricing, effectively “crowding out” private investment. The consensus view is that 1) DFIs should only make investments that private investors are unwilling or unable to make, e.g. in lower-tier or greenfield microfinance institutions (MFIs), 2) DFIs should focus on catalytic investments that entice private investment, especially in the current economic downturn, and 3) DFIs should exit investments once they have achieved the demonstration effect and private investors are ready to supply substitute funds.
The nascent nature of microfinance private equity reveals infrastructure needs in the sector. LPs observe that few MIV managers possess a private equity background in emerging markets and microfinance investing experience. The small deal size is a constraint for large institutional investors; one group discussed the potential role for brokers to bundle transactions and provide related due diligence. A participant advocated for the establishment of a global microfinance stock exchange to promote a secondary market.
There is concern that a backlash against commercialization will make microfinance “the stillborn asset class.” The case for commercialization must be made in a collegial way: clear and compelling in order to generate market demand, while acknowledging the significant role that philanthropic actors and non-profit leaders have played in the sector’s development. Energetic debate continues about whether a for-profit business can truly maintain a “double bottom line.” Lack of consensus on social performance metrics persists among donors, “Social First” and “Financial First” investors.
Valuation of microfinance equity is problematic. It is difficult to value MFIs in the absence of a secondary market or other avenues for equity investment exits. Valuations are highly specific to the MFI and to local macroeconomic, legal and regulatory conditions. The relative value of microfinance private equity as compared with general emerging markets private equity is unclear.
Current investment trends are mixed. Participants were encouraged that 58% of MIVs met recent funding targets despite liquidity challenges and market turmoil. In general, however, attendees believe that investor risk appetite is down. LPs feel that equity multiples are not dropping as quickly or as low as they expect. Some GPs have observed an LP paralysis, as LPs are in no rush to invest in a market they believe will drop further. One investor noted that GPs must better articulate to LPs the value proposition of microfinance. While some countries struggle, equity investment activity in others such as India is strong.
Participants’ feedback on the Forum was very positive. Many indicated that they made new contacts and obtained valuable market intelligence through the survey and breakout sessions. Intellecap and IAMFI will each continue to promote scale and sustainability in serving the financially excluded through for-profit investment.
Special thanks to Lindsay Clinton, Ranjit Koshi and Aparajita Agrawal of Intellecap, Vineet Rai of Aavishkaar Goodwell, Julie Abrams of Microfinance Analytics, and Jordan Filko of IAMFI for their assistance as facilitators and note takers during the breakout sessions. Please see the survey slide presentation and read the related article, Microfinance Private Equity: Taking the Pulse of an Emerging Investment, co-written by Lindsay Clinton of Intellecap and Joan Trant of IAMFI, which summarizes the survey findings.
IAMFI followed up with additional insights on microfinance private equity by hosting a Webinar on May 27, 2009 to present the findings from the CGAP – J.P.Morgan study, Microfinance - Shedding Light on Microfinance Equity Valuation: Past and Present for IAMFI members and guests. For more information, please view the Webinar event summary, which includes links to the study and Webinar slides.
IAMFI-S&P Teleconference - Microfinance Institutions: Changing Strategies for Changing Times
Virtual Event, February 24, 2009
The call began with opening remarks by Joan Trant, Executive Director of the International Association of Microfinance Investors (IAMFI) followed by introductions of the Standard and Poor’s (S&P) microfinance experts speaking on the call:
- Andrea Esposito, Managing Director Microfinance, New York
- Gary Kochubka, Senior Director Structured Finance, New York
- Angélica Bala, Director, Latin American Financial Institutions, Mexico
- Nelun Wijeyeratne, Microfinance Project Manager, New York
Call topics included a discussion of the effects of the economic crisis on microfinance, the response by microfinance institutions (MFIs) and S&P’s pilot MFI rating project in Latin America.
MICROFINANCE AND THE ECONOMIC CRISIS
Historically, MFIs relied on philanthropic or public funding, and their microentrepreneur borrowers were largely immune to widespread economic trends, but with the global integration of MFIs this has changed. It is now important to consider how MFIs might be impacted if foreign direct investment declines, if there are disruptions to local and global capital markets, or if there are fluctuations in remittances from abroad. MFIs have begun to face more competition from commercial banks and also from other MFIs.
Combining economic downturn, decreased remittances, and higher food costs, the current global crisis has no precedent in the experience of the microfinance industry. The liquidity crunch has increased cost of funding by 200-500bps. Tighter interbank markets, particularly in Russia and China, have reduced local funding. On the other hand, multilaterals have stepped in, evidenced by the KfW-IDB $500 million fund. Increases in deposits may offset some MFI liquidity issues but their growth is uncertain and varies by region. There is an asset liability mis-match, with longer term borrowing by MFIs underlying shorter term loans to microentrepreneurs, but this may be changing as lenders to MFIs shorten tenors. Macroeconomic factors are affecting asset quality, particularly through a decline in remittances and increase in non-performing loans (NPLs). Inflation is up in some countries, such as India and African nations, which are big food importers. Foreign exchange exposure is a major issue, since many MFIs borrow in hard currencies and receive repayments in local currencies, meaning their debt can double or triple at any time.
While MFIs have recently experienced high growth in earnings, the current crisis may have a serious impact on this trend. Their formerly high net interest margin is now suffering due to the liquidity crisis causing increased costs of borrowing. This is hitting smaller MFIs particularly hard given their inability to take deposits and their lack of access to concessionary funding. It is also more difficult to pass these costs on to borrowers who are finding it harder to repay. Many MFIs don’t want to pass on these costs anyway as it conflicts with their double bottom line goals. Already high operating costs are rising with inflation and increased staff and transportation costs. Growth is slowing and concerns about asset quality and efficiency are intensifying as staff productivity suffers with more time devoted by loan officers to loan monitoring and collection.
In the specific experience of Latin American MFIs, interest rate caps have been manageable and competition is strong. Inflation, customer indebtedness, and NPLs are all increasing in the region, and profitability is down but is being offset in some MFIs with investments in IT platforms. In some cases, for example in Colombia, clients have taken on additional debt, often via credit cards, causing MFIs not to renew loans. Many fledgling credit bureaus list names of borrowers but no credit data; this lack of comprehensive indebtedness information is a form of systemic risk. Customer education should be a priority, to build awareness of how dangerous it can be to have multiple loans at the same time.
MFIs must improve their ability to identify and manage risks, and the right measures must be taken to contain non performing asset growth. Most Latin American MFIs are doing this. Currently return on assets is low but can be improved in the future with better NPL ratios.
In terms of structured finance in the industry 2008 was a quiet year of three proposals, all postponed until 2009 and one not likely to proceed. Portfolio managers may enter the market later depending on market conditions. Investor appetite remains, but the widening of interest rates is disadvantageous to getting deals done. BlueOrchard Loan for Development 2 (BOLD 2007), a Collateralized Loan Obligation (CLO) of unsecured loans totaling US$110.2 million, was the first microfinance CLO rated by a major rating agency (S&P) and is performing to rating expectations. For now microfinance is probably limited to a pool transaction basis but a single MFI portfolio deal is possible in the future. The microfinance experience is comparable to other emerging market sectors – fairly strong, with remittance deals closing and some market interest. Foreign currency swap pricing plays into the overall deal structure, with entrants such as The Currency Exchange (TCX) out of Europe and Cygma from the U.S. targeting microfinance transactions vis-à-vis traditional market players.
MFI RESPONSE
Some MFIs have been addressing the current challenges with more conservative underwriting, increased knowledge of their customers, and more monitoring of loans and repayment. One way of gauging an MFI’s ability to face these challenges successfully is assessing their information systems’ capacity to track changing conditions and facilitate quick responses. To address the competing challenges of lowering costs and stabilizing revenues MFIs will need to establish prudent growth plans, seek increases in efficiency, be vigilant in managing client relationships, and maintain liquidity.
MFIs are looking to different funding options for temporary liquidity or long term development, with some falling back to their original core funders such as multilaterals, socially responsible investors, and foundations. Enhancements to traditional funding are also taking place such as third party partial credit guarantees to improve access to loans. Bilateral loans may resurface. Foreign currency risk is an issue for both MFIs and investors. In microfinance, hard currency lending (dollar and euro) remains prevalent, and while local currency loans may be more appropriate for smaller, less sophisticated MFIs this presents an issue for investors seeking to hedge less liquid currencies.
From the ratings perspective it is difficult to guess now at the full extent of the impact on microfinance of the global economic downturn, Public ratings for MFIs now range from B to BBB on a global scale and such a range connotes a spectrum of weaknesses and strengths. Those most prone to default are rated lower, meaning they are most subject to prevailing market conditions. At present, raters are maintaining stable outlooks for all MFI ratings. Although many are going through tough times as a result of the crisis, thus far they are managing their difficulties well. Performance distinctions will be reflected in the ways MFI managers react to the present challenges.
MFI RATINGS CRITERIA
The goal of S&P’s microfinance rating program is to bring transparency to the market with standardized comprehensive global sets of factors in analysis in order to make MFIs comparable across borders and asset classes. This basic mission has not been compromised by the current economic environment; there is now an even greater emphasis on transparency. Both the rating symbol and the report with analysis are increasingly important with the convergence of commercial equity and debt investors in microfinance. While investors do their own internal analysis, the role of raters is to provide an external benchmark.
The S&P MFI rating methodology is based on the firm’s standard financial institutions criteria with some adjustments made to reflect traits particular to MFIs. This covers system-wide factors, ownership, management governance, region-wide criteria, and more. There are distinctly unique aspects of microfinance including high volume and small transaction size, incomplete supervisory regimes, the double bottom line, high variability of management skills and types of ownership, macroeconomic factors with specific effects on MFIs, various lending methodologies (such as group vs. individual), asset liability management challenges, longer term funding issues, and distinctive forms of ownership (non-profit, for-profit, regulated, unregulated), to name a few. Some broader factors, such as political instability or civil strife (as evidenced by the post-election violence in Kenya), lack of collateral typical of microfinance clients, and natural disasters may impact MFIs more so or differently than other economic actors. The weighting of each factor differs depending on the larger economic situation, the regulatory environment, and country-specific customs and laws.
Risk management and asset quality in microfinance are treated differently in rating from large banks. Risk management systems are assessed to gauge an MFI’s ability to deal with the risks specific to MFIs. Risk policy articulation, underwriting standards, efficiency, and internal procedures are important when assessing an MFI’s ability to handle risk. In this sense slowed growth due to the present global economic downturn may offer an opportunity for MFIs to put in place comprehensive risk management systems.
Regulatory and legal frameworks also impact the strength of MFIs significantly. Not all MFIs are regulated, and different legal structures may be regulated with varying intensity creating an uneven playing field. Often government regulation, such as interest rate caps and subsidies and guarantees for public MFIs, precludes the existence of a healthy microfinance sector. Governments can instead promote sustainable microfinance industries by creating prudent, flexible, clear regulation based on sound understanding of microfinance and commensurate with the actual risk parameters of the sector. This may include regulation allowing deposit taking which benefits both clients and investors, and client protection measures including financial education and transparency.
In total, 35 IAMFI members and guests participated in the call. One participant offered this feedback, “Really appreciated the chance to participate. I thought it was a very useful and overall well structured call. I think the S&P people were to the point and seemed to have a good understanding of the issues... it definitely improved my understanding of the situation.”
During the Q&A section of the call, the recent S&P publication ‘BRIC By Name, BRIC By Nature?’ was mentioned. For information on how other emerging markets have been affected by the global economic crisis please read this document. For more information on the topics covered in the call, please read the publication ‘Microfinance Institutions: Changing Strategies for Changing Times.’
IAMFI Networking Lunch – New York 
New York, November 13, 2009
To facilitate dialogue among microfinance investors, fund managers and industry service providers such as wealth managers, foundations, rating agencies and lawyers, IAMFI’s Board of Directors will be hosting networking luncheons in cities where there is an active microfinance community.
IAMFI Networking Lunch, New York City (left to right):
Michael Hokenson and Sam Moss, IAMFI Board Chair
IAMFI’s first lunch event was an informal affair held at IAMFI’s offices and attended by industry participants in the metro area, IAMFI’s Board and association staff. Guests engaged in lively conversation with both new and familiar faces. After the meal, the event turned into a roundtable discussion in which attendees updated the group on their organizations’ activities and shared their perspectives on the industry, particularly in light of the challenging financial climate.
IAMFI Networking Lunch, New York City (left to right):
Tryfan Evans, IAMFI Board Member and Didier Lamarche
Given IAMFI’s goal to improve information access and networking, it was particularly pleased with the attendees’ positive feedback on the event. Please visit Upcoming IAMFI Events periodically for information on future networking lunches. In some cases these will coincide with a parallel microfinance event being hosted by a third party, providing both local and visiting microfinance actors with a more diverse networking opportunity.
IAMFI Networking Lunch, New York City (left to right):
Mary Rose Brusewitz and Henry González
IAMFI Webinar: Foreign Currency Considerations in Cross Border Microfinance Investment
Virtual Event, November 20, 2008
In the context of the global financial crisis and rising U.S. currency, cross border microfinance investment gains may be offset by currency losses. Recent experience proves the value of foreign currency hedging in microfinance investment. For example, four Latin American microfinance institutions (MFIs) experienced a year-on-year drop in net income of 7% to 14%, and fifth suffered a 75% decline, due to currency devaluations. Similarly, two Eastern European MFIs’ net income decreased by 14% and 43%. These currency-related losses occurred in different nations in different years, underscoring the importance of currency protection in prudent asset liability management. As part of its educational activities, IAMFI hosted a webinar for investors better to understand the opportunities and strategies for hedging cross border microfinance investment.
Konstantin Andreev of Cygma and Brian Cox of Micro FX Solutions were IAMFI’s guest speakers. Konstantin provided an overview of recent currency trends. He presented several hedging strategies and tools for investors to mitigate risk, such as currency forwards, options and swaps. Brian focused on the impact that currency risk has on MFIs’ balance sheets. He noted that currency devaluation costs are often passed via higher interest rates to microborrowers - who are least able to manage the impact of currency movements - and offered some hedging solutions for MFIs.
Thirty-five Webinar attendees representing every aspect of the microfinance industry participated in the event and engaged in a wide-ranging Question & Answer session following the presentations.
Key conclusions drawn from the Webinar include: 1) MIVs and MFIs must establish sound asset liability management policies that incorporate currency risk mitigation; 2) shorter-term loans and country diversification reduce risk in the current environment; 3) investors are better equipped than most MFIs to assume currency risks and ideally will lessen them through hedging instead of passing them down the microfinance chain; 4) frontier currencies are exhibiting wider bid-ask spreads, which increases hedging - and therefore funding - costs; 5) some countries’ regulations prohibit effective hedging; 6) currency forward rates at times are poor predictors of future exchange rates, but they represent industry consensus and thus are the best guide; 7) seeking increased local funding is an opportune strategy for MFIs to pursue; and 8) cross border equity investors are particularly susceptible to currency risk and should hedge investments accordingly.
IAMFI is grateful to Brian and Konstantin for facilitating the dissemination of timely information about foreign currency implications in microfinance investing. It likewise extends thanks to Webinar attendees for using IAMFI as a forum for sharing their perspectives. Participant feedback included the following:
“Thank you so much for inviting us to the Webinar, as always it was really useful and the topics were the right ones to talk in the actual economic crisis.” - M. Barragán, LocFund
“Great conference, and very convenient technology! Thanks a lot for coordinating.” - C. Novak, Morgan Stanley
“Excellent Webinar, thanks! Both presentations and the Q&A responses were impressive.” - J. Abrams, Microfinance Analytics
For more information, please view Konstantin Andreev’s presentation, Brian Cox’s presentation, and additional informational articles.
IAMFI-Fitch Ratings Investor Teleconference
Virtual event, August 6, 2008
IAMFI and Fitch Ratings co-hosted an investor teleconference entitled Microfinance: Its Success Could Be Its Biggest Risk. The program began with presentations by Fitch Ratings’ microfinance specialists of their recent publications, Special Report -The Microfinance Sector: Its Success Could be its Biggest Risk and Criteria Report – Microfinance Institutions – Factors in Risk Assessment. The Fitch team addressed some of the most current and fundamental issues in microfinance investing, such as factors in risk assessment of MFIs, the transformation process and its implications, the impact on microfinance of its emerging market environment, and the potential role of capital markets in the future of the industry.
A dynamic Q&A session followed, driven by a diverse group of over 50 participants. Representing varied perspectives and levels of experience in microfinance investing, participants’ questions focused on the current nature of the industry, the potential course of its rapid development, the role of social impact in credit ratings, the future of the correlation factor, currency risk management, and the effects on microfinance of both rising food prices and inflation.
This event was successful both in facilitating the dissemination of new information about microfinance investing and in providing a forum for discussion among microfinance investors and other industry actors, two core aspects of IAMFI's mission. The research, presentations, and administrative services contributed by Fitch Ratings were instrumental to this success. View the Fitch Ratings’ summary slide presentation related to the teleconference here.
For a summary of the event click here.
Microfinance Investors Reception
San Francisco, July 15, 2008
"What a great event - there was a real buzz in the room!"
"The reception was the best part of the two days. I met new people who were investors, not just the usual suspects."
"My organization (a family office) had looked into microfinance as an investment option a few years ago but didn't see any opportunities that would fit our strategy. I met two investment managers this evening that I look forward to following up with."
Advancing Microfinance for Market-Driven Investors – IAMFI Board Panel
Microfinance West: The Investment Opportunity Conference
Hosted by FRA and SVMN, San Francisco, July 14-15, 2008
Members of IAMFI’s Board presented a panel entitled "Advancing Microfinance for Market-Driven Investors" at the Microfinance West conference hosted by Financial Research Associates and the Silicon Valley Microfinance Network. Executive Director Joan Trant moderated the panel, comprised of Tryfan Evans (Omidyar-Tufts Microfinance Fund), Terri Lecamp (Plainfield Asset Management), Ann Miles (BlueOrchard Finance USA) and Sam Moss (Gray Matters Capital). This was the conference’s only panel fully comprised of investors discussing microfinance investment from their unique perspective, in contrast to the more prevalent presence of donors, microfinance networks, microfinance institutions and industry service providers. In this sense IAMFI achieved two of its key goals on behalf of its membership: to represent investor views and to foster dialogue among all industry participants.
IAMFI panelists shared their thoughts on investing and on key microfinance issues impacting the flow of private sector funds to investment vehicles and in turn to microfinance institutions, using the following outline to guide the session.
Views on Microfinance Investment in the Current Environment (T. Lecamp and T. Evans)
In addition to the challenges inherent in a nascent asset class, emerging market nations, microfinance institutions and their customers are subject to the broader economic unease due to:
- Inflation
- Interest rates
- Reduced debt options
- Energy and food prices
What concerns do Limited Partner investors have in light of the current challenges? What is compelling about microfinance despite these issues?
Common Questions Investors Ask (A. Miles)
Investors increasingly seek to commit assets to microfinance but investment decisions are hindered by a lack of information and transparency. What are Limited Partner investors’ top questions and concerns as they evaluate investing in microfinance?
Some Examples of How Investors Mitigate Risks
Several microfinance investment vehicles and industry service providers are developing tools to help investors reduce risk. What are some of these tools and what may investors look forward to as the microfinance sector evolves?
- Liquidity (S. Moss, A. Miles)
- Antares Fund
- Dexia Fund
- Transparency (T. Evans, A. Miles)
- Fund evaluation methodologies and valuation
- CGAP fund disclosure benchmarks, LuxFLAG, et.al.
- Reputational Risk [if time permits] (T. Lecamp, S. Moss)
- Sample investors’ approach to balancing financial and social returns
- IAMFI efforts to focus impact measurement on industry-strengthening indicators
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