Joan Trant,
Executive Director, International Association of Microfinance Investors.
Joan Trant's presentation from the 2009 Take Action! Impact Investing Conference in San Francisco.
2. Discussion Points
• Microfinance Demand
• Investment Landscape
• The Business and Social Case for Commercialization
• Appendix: IAMFI Overview
3. Microfinance Funding Demand
• Total population living under $2/day: 2.7 billion
• Total current microfinance customers: 100 million
• Total estimated potential customers: 1.5 billion
• Total estimated microfinance loans outstanding: $35 billion
• Estimated funding gap: $265 billion
4. Microfinance Investments
$10.1 billion as of 12/08 by primarily cross border funders
• Development Finance Institutions (DFIs): $4.9B
• Private Institutional: $2.9B
• Retail: $2.2B
Instruments
• Fixed Income: 77%
• Equity: 21%, but growing….
- 11 new funds launched in 2008; all were equity or equity + debt
- MF equity investment 2004-08: $2.2B to $7.6B
$6.1B funding channeled via 106 microfinance investment vehicles
Source: CGAP and IAMFI
5. Microfinance Investment: Sample Returns
Equity returns
• CGAP – J.P. Morgan Equity survey (Jan. 05 – Sept. 08):
1.3 - 1.9x book value
• Recent equity sales of Mongolian bank shares:
• two exits in late 05 - early 06: 1.2x book
• one exit in 2007: 1.5x
• one exit in 2008: 2.5x
• one exit in 2009: 2.5x
• ROE returns range from 12-23% (higher in India)
Debt returns range from 2-13%
6. Microfinance Investors
Institutional investors:
• Government-owned DFIs
• Corporations (banks, insurance companies)
• Pension funds
• Endowments
• Private equity and hedge funds
• Foundations
• Family Offices
Individual Investors
• High net worth
• Retail
7. Microfinance Investment Environment: Why Invest Given
Significant Hurdles?
• Non-standardized information, self-reported and collected by
diverse sources
• Most information focused on microfinance institutions’ (MFIs)
and donors’ needs
• Lack of transparency, deal standardization, consensus on best
practices
8. Microfinance Investment Environment: Why Invest Given
Significant Hurdles?
• Fewer investor services compared to more established asset
classes (credit ratings, secondary market, fund rankings)
• Many MFIs seek commercial capital, but only about 250 are
investor-ready
• The industry must address both the demand for funding by the
unbanked and the limited absorptive capacity of the MFIs
9. The Business Case for Microfinance Investment
MFIs exhibit attractive business attributes:
– Loyal client base means lower acquisition and operation costs
– Interest rates are high to cover hefty operational expenses
– Microborrower loan repayment rates are 95-98%
– ROE average around 19%
– Short-term loans contribute to high solvency and liquidity
10. The Business Case for Microfinance Investment, cont.
• High growth sector with huge market demand –MF penetration
in 8 largest countries is below 5%, with 15x growth factor
• Microfinance offers emerging market diversification and low
correlation – good for reducing investment volatility
• Microfinance helps investors align their investments with their
values in an active way, not just through passive screening
11. The Business Case for MFIs to Commercialize
• Expand outreach to more unbanked borrowers
• Replace shrinking donor contributions
• Improve capital structure
• Increase range of products for clients: savings, insurance,
remittances, specialized loans for education and housing
• Founding nonprofit lending institutions may use profits to fund
services for the most vulnerable
12. The Business and Social Case for Microfinance Investment
• Donor funding is never sufficient to meet human development
needs
• MFI transformation and commercialization facilitate client
savings
• Savings provide an inexpensive, stable source of capital for
MFIs
• Savings products offer clients safety and liquidity
• Savings - not loans - alleviate poverty
13. The Business and Social Case for Microfinance Investment
• Financial and social returns are linked and mutually reinforcing
• Strong financial performance improves institutional capacity to
serve the target population
• Strong social performance improves customer loyalty, referrals
and repayment rates, lowering costs and risks
• Commercialization should not be viewed as an inverse proxy
for development impact
• Investors may select investment partners based on desired level
of social performance focus
14. Leveraging Capital for Financial and Social Returns - Conclusion
Microfinance presents an attractive opportunity for impact
investors with:
• Global focus
• High tolerance for illiquid assets
• Long-term investment horizon
• Acceptance of the assets’ risk profile
• Leniency regarding short industry track record
15. Appendix: About IAMFI
IAMFI is a global membership organization dedicated to helping
commercially oriented microfinance investors, particularly Limited
Partner institutional investors that invest through MIVs, to leverage
their capital more effectively. IAMFI’s services include:
• Providing credible, comprehensive and timely information on
the microfinance industry from an independent perspective
• Conducting research on investment-related topics
• Hosting virtual and in-person educational and networking events
• Facilitating dialogue and action among all sector participants to
improve the investing environment
16. IAMFI’s Members
Limited Partners (LPs): Active and potential investors who invest in an
investment vehicle rather than investing directly in microfinance
institutions.
General Partners (GPs): Public and private entities that manage a fund or
investment vehicle in which there are many investors.
Service Providers (SPs): Entities that help advise, structure, consult or
broker investments in the microfinance industry.
17. IAMFI’s Members, cont.
Founding Members
DOEN Foundation Plainfield Asset Management
Omidyar Network Rockefeller Foundation
Gray Matters Capital Triodos Management
TIAA-CREF
Charter Members
BlueOrchard Finance USA, G. Casagrande (SPBD, MicroDreams),
Co-operative for Financial Services, Grassroots Capital
Management, J.P. Morgan, MEDA, MicroCredit Enterprises,
MicroVest, Minlam Asset Management, Morgan
Stanley, Norwegian Microfinance Initiative, Omidyar-Tufts
Microfinance Fund, Triple Jump, two individuals
18. IAMFI’s Services
Information Portal
• Robust web site with third-party information and data about
microfinance and microfinance investing
• Reviewed for relevance and accuracy so that investors may
evaluate information more efficiently
• Password-protected “Members Only” section
Research
• White papers, Position papers
• Studies on debt, equity, GP and LP investor checklists
19. IAMFI’s Services, cont.
Education, Conferences and Events
• Hosted and co-hosted international conferences on
microfinance investing
• Issue-specific events and seminars for special interest groups
within the Association’s membership
Community
• Forum for members to discuss interests, goals and concerns
• Vehicle for dialogue, consensus-building and action among
all sector actors, e.g. IAMFI Microfinance Lenders Working
Group
21. The International Association of Microfinance Investors (IAMFI) is a global
membership organization dedicated to serving current and potential
market-driven microfinance investors, especially those who invest
in funds and other vehicles.
IAMFI helps investors achieve their goals by offering credible, objective
industry information, conducting research, organizing educational
and networking activities, and working to improve the global environment
for microfinance.
The association seeks to promote the virtuous circle of capital flows between
private sector sources, investment vehicles and microfinance institutions,
enabling greater access to financial services for the world’s working poor.
For more details, contact Joan Trant, jtrant@iamfi.com, +1.212.297.2137.
