a short view on microfinance, microfinance investment vehicles and other investors

1. Equity Investment in Micro Finance: when
financial gains drive social improvements
Financieros sin Fronteras. Instituto de empresa, Madrid 4 Feb 2011
Jorge Berezo - Oikocredit

2. 0. Oikocredit
1. Microfinance: then and now
2. Commercial investments in MF
3. Challenges

3. Oikocredit

4. Oikocredit: not just another fund
• International credit cooperative society under Dutch law
• Mission: global justice through SRI and enabling access to financial
services
• Finances projects in the South with a positive impact in
development
• Not for profit maximization. High social return. Very modest
financial return.
• Founded in 1975. Very solid organization
• Ecumenical origin and spirit
• Leading private investor in microfinance

5. Investment criteria
The project…
• comes from a cooperative, MFI or SME?
• benefits disadvantaged people?
• makes women influential in management or implementation?
• is responsible in terms of the environmental impact?
• seems financially sustainable?
• needs foreign investment?

6. Financed projects: project partners
• Organizations (not individuals)
• With a mission and a project coherent with our mission
• (Very often) not financed from commercial banks
• In any of the “focus countries” of Oikocredit
• Types of projects:
o Microfinance projects / Microfinance institutions
o Production Cooperatives (agriculture, livestock, manufacturing…)
o SMEs
o Fair trade projects
o Others (seldom)

7. Product diversity
1. Loans in hard currency
2. Loans in local currency
3. Credit lines
4. Equity investment
5. Guarantees
Loans
• Adjusted interest rate
• From € 50.000
• Long term (3 to 10 years)
• Collateral according to the project
• Grace period
CEDO, Giida Namirembe • Partnership ”walking a 2nd mile”
• Technical assistance

8. Network in the field
35 offices worldwide to analize projects
31 support associations to channel retail investment (16 countries)

9. Facts and figures (as per 31/12/2011 preliminary not audited)
863 projects financed outstanding (592 in microfinance)
€ 481 million total capital outstanding
(% outstanding capital)

10. Social performance
Select the right projects
• Project selection criteria
• Social Performance Indicators
Help financed projects gauge and improve their impact
• People out of Poverty Index (Grameen Foundation),
• Social Performance Indicators (Cerise)
• Client protection principles
• MF transparency
Monitor our operations
• ESG (environmental, social, governance) indicators

11. Social performance – data (as per 31/12/2009)
• number of borrowers reached by Oikocredit’s microfinance
partners : 17 million, of which
1 million approx. is due to Oikocredit’s funds
85% are women
53% are rural clients
(based on 68% of the microfinance partners reporting)
More that 2/3 of the supported IMF are small or mid-sized.
• Around 1/3 of the project partners operate only in rural areas

12. What makes Oikocredit different?
• Committed with the poor
• Credit in rural and urban areas
• Credit for production projects
• From the South, for the South
• Local currency
• Under local law
• Long term
• Cooperative, over 35 years experience

13. Oikocredit in Spain
Oikocredit Catalunya Oikocredit Euskadi Oikocredit Sevilla
Bisbe Laguarda, 4 Viuda de Epalza 6 (Kidenda) Avda. de Ramón y Cajal, nº 24, 1a
08001 Barcelona 48005 Bilbao 41005 Sevilla
Tel: 93 441 63 06 Tel. 94 416 68 56 Tel. 646 360 038
catalunya@oikocredit.org euskadi@oikocredit.org sevilla@oikocredit.org
www.oikocredit.cat www.oikocrediteuskadi.org www.oikocredit.org

14. Microfinance: then and now

15. What do we mean by microfinance?
Definition from the Microcredit Summit Campaign 1997
• Programs to extend small loans to the poorest of the poor so as to allow
them to pursue entrepreneurial projects that generate extra income, thus
helping them to better provide for themselves and their families.
Definition from the Microcredit Summit Campaign 2007
• Programs to extend loans for self-employment and other entrepreneurial
and financial services (including savings and technical assistance) to very
poor people.

16. Evolution (1)
Then Now
Microcredit:
- Group and individual
Microcredit: - Microentreprise, consumption, housing
- Group lending Microsavings
- Microentreprise Pension funds
Microinsurance
Payment services (remittances, transfers…)
Small scale Large scale (154 M clients – MSCampaign 31/12/2007)
Target group: the poorest and the Target group: wide (including SMEs, middle
very poor class…)

17. Evolution (2)
Then Now
RoSCAs (federated) + village banks
RoSCAs + village banks Credit and saving cooperatives
Credit and saving cooperatives NGOs
NGOs Up-scaled NGOs (4th sector)
For profit
Non-formal institutions (self-owned, NGOs)
Non-formal institutions (self-
Non-bank financial institutions (regulated)
owned, NGOs)
Banks

18. Evolution (3)
Then Now
Search for sustainability
Hardly operationally sustainable Many financially sustainable
Some very profitable
Social impact taken for granted Social impact to be proven
Funding: grants, reserves, savings,
Funding: grants investment, capital markets…

19. Why such a success?
1. Great innovation. Blends features from informal and
formal sectors
From the informal sector From the formal sector
Loans without collateral Trust and institutional stability
Closeness and knowledge of the Tendency to efficiency and professionalism in
client (personal and culturally) the operations
Simple and quick procedures Availability of funds
Amount and terms adapted to poor Interest rates often lower than informal
clients sector
Source: Gutiérrez-Goiria, J. (2009) Las microfinanzas y el desarrollo. Situación
actual, debates y perspectivas, Cuaderno de trabajo Hegoa, nº49, Bilbao.
2. High expectancies. Huge political impulse

20. Commercial investments in
microfinance

21. Source of funds (1)
Source: MIX Microfinance World: Microfinance Market Report for Latin America
and the Caribbean 2010

22. Source of funds (2)
Source: CGAP (2009). Microfinance Funder Survey

23. Funding landscape (1)
Quoted in: Fondos de inversión microfinanciera: Características clave y
mejores prácticas. Setem 2006

24. Funding landscape (2)
Source: CGAP Focus Note 44. Foreign Capital Investment in Microfinance.
Balancing Social and Financial Returns (based on a 2006 Survey)

25. MIV: a growing phenomenon
Source: Glisovic-Mezieres and Reille (2010) and MicroRate (2010) quoted in
An Empirical Analysis on the Efficiency of the Microfinance Investment
Market. Dec 2010, Inoue, T. & Hamori, S.

26. MIV returns
Source: Glisovic-Mezieres and Reille (2010) Microfinance Investors Adjust
Strategy in Tougher Market Conditions. CGAP Brief. October 2010

27. MIV landscape
Source: Glisovic-Mezieres and Reille (2010) Microfinance Investors Adjust
Strategy in Tougher Market Conditions. CGAP Brief. October 2010

28. Source: Fondos de
inversión microfinanciera:
Características clave y
mejores prácticas. Setem
2006

29. MIV (+ institutional investors’) evolution
1. Increasing commercial investors
2. From own management of the portfolio to structured funds
3. Increasing competition
- Inflow
- Outflow
- Talent attraction
4. Market not mature
5. Latest developments / sophistication:
• Of MFIs: securitization, bond emissions, OTC trade, go listed, IPOs…
• Of MIVs: structured investment vehicles, funds of funds,
securitization into structured funds
• Of markets: MF index, investment managers, IMF and MIV ratings…
6. Lack of sector standards

30. Sophistication

31. Equity investments
1. DFI and Social investors were the first investors in equity with
the aim of helping young and promising MFIs develop. It
continues.
2. Commercial investors attracted by high ROE
3. Banks buying MFIs to enter BoP business

32. Challenges

33. Microfinance at stake

34. What do you think?
Challenges for MIVs and institutional investors
Risks from growth of MIVs

35. The industry reacts

36. The industry reacts
1. Range of Services. We will actively support retail providers to innovate and expand the range of
financial services available to low income people in order to help them reduce their vulnerability,
build assets, manage cash-flow, and increase incomes.
2. Client Protection. We believe that client protection is crucial for low income clients. Therefore
we will integrate client protection in our investment policies and practices.
3. Fair treatment. We will treat our investees fairly with appropriate financing that meets demand,
clear and balanced contracts, and fair processes for resolving disputes.
4. Responsible Investment. We will include environmental, social and corporate governance (ESG)
issues in our investment policies and reporting.
5. Transparency. We will actively promote transparency in all aspects.
6. Balanced Returns. We will strive for a balanced long-term social and financial risk-adjusted
return that recognizes the interests of clients, retail providers, and our investors.
7. Standards. We will collaborate to set harmonised investor standards that support the further
development of inclusive finance.

37. The industry reacts
Smart Campaign – Client protection principles
1. Avoidance of Over-Indebtedness.
2. Transparent and Responsible Pricing.
3. Appropriate Collections Practices.
4. Ethical Staff Behaviour.
5. Mechanisms for Redress of Grievances.
6. Privacy of Client Data.

38. THANK YOU!!!!!
JORGE BEREZO
Oikocredit Euskadi
Viuda de Epalza 6 (Kidenda)
48005 Bilbao
Tel. 94 416 68 56
jberezo@oikocredit.org
www.oikocrediteuskadi.org