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- 1. Incorporating Microfinance Institutions into Capital Markets Drew Tulchin Social Enterprise Associates BYU, 6 th Conference on Microenterprise March, 2003 If it talks like a duck, walks like a duck & looks like a duck, it is more readily treated like a duck
- 6. PICTURE Est. MFI Portfolio Annual Asset Turnover $4 B Est. Total Customer Need / Demand $300 B Where is this money going to come from?
- 11. PICTURE ANNUAL giving of all US Foundations (2000) $5 B DAILY transactions on Wall Street (2000) $1 T Which pot of money would you rather be drawing from?
- 14. Talking Like a Duck Language of returns w/ a financial motive Language for donors w/ a social motive Marketing Outreach Profitability Sustainability Customers Clients Investor Language MFI Language
- 15. PICTURE Number of ‘ Counted’ MFIs 1% % financially self-sufficient, (a.k.a. profitable) 10,000 Which group would you prefer to belong to?
- 20. PICTURE Growth Which side of the line returns an investment? Amazon.com ( the early years ) Gas Companies (Cash Cow) Profitability
- 23. Looking Like a Duck Seek Equity, Quasi-Equity, Retain Earnings Balance Sheet Debt/Equity Ratio Secure Guarantees, Partner w/ ‘North’ Extensive Risks: i.e. Country & Currency Merge w/ Other Programs Relatively Small Size Reduce Growth (a la picture) Not Profitable Potential Solution MFI Challenge
- 24. PICTURE How much return are investors seeking? (Source: Morino Institute) Donation Investment $ Return? NO $ Return? YES
- 30. PICTURE Is the timing good for MFIs to access Capital Markets? $$$ in SR Funds (millions) US Interest Rates
- 32. Q & A Drew Tulchin Social Enterprise Associates www.SocialEnterprise.NET drew@SocialEnterprise.NET 617-872-0194 Thanks for listening, quack!
Notes de l'éditeur
- I. Understanding our audience (3 min) a. Who is our audience? Currently donors i. We’ve gotten good at appealing to them ii. What happens when they go away? iii. Preponderant model – 5 years as NGO to sustainability, then transform over 2 years to bank b. Who is the audience of capital markets? – Investors i. Individuals ii. Institutions iii. SRI iv. ‘The Street’ c. What are investors used to? i. Investment is known, familiar, understood ii. Risk factors are measured or known iii. Comparable iv. Track record / history ‘ Fits’ in their portfolio
- I. Understanding our audience (3 min) a. Who is our audience? Currently donors i. We’ve gotten good at appealing to them ii. What happens when they go away? iii. Preponderant model – 5 years as NGO to sustainability, then transform over 2 years to bank b. Who is the audience of capital markets? – Investors i. Individuals ii. Institutions iii. SRI iv. ‘The Street’ c. What are investors used to? i. Investment is known, familiar, understood ii. Risk factors are measured or known iii. Comparable iv. Track record / history ‘ Fits’ in their portfolio
- I. Understanding our audience (3 min) a. Who is our audience? Currently donors i. We’ve gotten good at appealing to them ii. What happens when they go away? iii. Preponderant model – 5 years as NGO to sustainability, then transform over 2 years to bank b. Who is the audience of capital markets? – Investors i. Individuals ii. Institutions iii. SRI iv. ‘The Street’ c. What are investors used to? i. Investment is known, familiar, understood ii. Risk factors are measured or known iii. Comparable iv. Track record / history ‘ Fits’ in their portfolio
- I. Talks like a Duck – Use of language in the microfinance industry (5 min) a. Language as a communication tool (Foucault, Chomsky, or other quoted) b. Language is an indicator of behavior c. Investors need us to talk in their language or at least a language they are comfortable with and understand d. Problems i. Sustainability, not profitability ii. Clients, not customers iii. Outreach, not marketing e. Solution Begin to adapt an investor-oriented language. This is a relatively small and subtle point, but highly indicative of larger issues. Certainly can be done once transformation is underway, but better addressed from the onset. Some might say a minor point, therefore all the easier to implement Can be changed once a bank, but easier to address from onset of organization Indicative of larger issues, see next section
- I. Talks like a Duck – Use of language in the microfinance industry (5 min) a. Language as a communication tool (Foucault, Chomsky, or other quoted) b. Language is an indicator of behavior c. Investors need us to talk in their language or at least a language they are comfortable with and understand d. Problems i. Sustainability, not profitability ii. Clients, not customers iii. Outreach, not marketing e. Solution Begin to adapt an investor-oriented language. This is a relatively small and subtle point, but highly indicative of larger issues. Certainly can be done once transformation is underway, but better addressed from the onset.
- I. Walks Like a Duck – MFIs need to resemble institutions for whom private capital is raised (5 min) a. The novelty of the MFI story helping the poor person. That is not enough. It is a testimonial. At best, it is niche marketing. At extreme, it is a further example of how MFIs are relegated to donations and not ready for private investment. b. The Problem i. A stereotypical NGO, looks like an NGO from the outside ii. There is no accountability, poor reporting, few systems iii. It is an NGO. It has a weak board filled with the founder/leader, some friends, and some big names to attract attention. No one owns it or has fiduciary responsibility for financial transactions. iv. No one owns the assets, nor is there strong rights to them v. The organization has not made a realistic assessment of its operational risks nor done a comparative analysis of the marketplace. c. The solution i. Professional presentation ii. House in order – Reporting & Management systems in place iii. Governance iv. Ownership v. Risk assessment Yes, there are exceptions. Public housing financing, NGOs are financed, Public/private entities LISC.
- I. Walks Like a Duck – MFIs need to resemble institutions for whom private capital is raised (5 min) a. The novelty of the MFI story helping the poor person. That is not enough. It is a testimonial. At best, it is niche marketing. At extreme, it is a further example of how MFIs are relegated to donations and not ready for private investment. b. The Problem i. A stereotypical NGO, looks like an NGO from the outside ii. There is no accountability, poor reporting, few systems iii. It is an NGO. It has a weak board filled with the founder/leader, some friends, and some big names to attract attention. No one owns it or has fiduciary responsibility for financial transactions. iv. No one owns the assets, nor is there strong rights to them v. The organization has not made a realistic assessment of its operational risks nor done a comparative analysis of the marketplace. c. The solution i. Professional presentation ii. House in order – Reporting & Management systems in place iii. Governance iv. Ownership v. Risk assessment Yes, there are exceptions. Public housing financing, NGOs are financed, Public/private entities LISC.
- I. Walks Like a Duck – MFIs need to resemble institutions for whom private capital is raised (5 min) a. The novelty of the MFI story helping the poor person. That is not enough. It is a testimonial. At best, it is niche marketing. At extreme, it is a further example of how MFIs are relegated to donations and not ready for private investment. b. The Problem i. A stereotypical NGO, looks like an NGO from the outside ii. There is no accountability, poor reporting, few systems iii. It is an NGO. It has a weak board filled with the founder/leader, some friends, and some big names to attract attention. No one owns it or has fiduciary responsibility for financial transactions. iv. No one owns the assets, nor is there strong rights to them v. The organization has not made a realistic assessment of its operational risks nor done a comparative analysis of the marketplace. c. The solution i. Professional presentation ii. House in order – Reporting & Management systems in place iii. Governance iv. Ownership v. Risk assessment Yes, there are exceptions. Public housing financing, NGOs are financed, Public/private entities LISC.
- I. Looks Like a Duck – What a deal has to look like (5 min) a. Understand the audience b. Different deals to different customers c. The problem i. Balance sheets ii. Time needed for profitability iii. Relatively small size iv. Int’l risk, country, and currency risk v. Sending mixed messages (reference above) d. The solution i. Organization’s performance and ‘best practices’ ii. Regulations, nationally and internationally (e.g. New Zealand housing market) iii. Donor’s ‘right’ assistance – guarantees, TA support, fixed start-up equity iv. Deal: term, return, size, underwriting criteria, monitoring, etc
- I. Looks Like a Duck – What a deal has to look like (5 min) a. Understand the audience b. Different deals to different customers c. The problem i. Balance sheets ii. Time needed for profitability iii. Relatively small size iv. Int’l risk, country, and currency risk v. Sending mixed messages (reference above) d. The solution i. Organization’s performance and ‘best practices’ ii. Regulations, nationally and internationally (e.g. New Zealand housing market) iii. Donor’s ‘right’ assistance – guarantees, TA support, fixed start-up equity iv. Deal: term, return, size, underwriting criteria, monitoring, etc
- I. Looks Like a Duck – What a deal has to look like (5 min) a. Understand the audience b. Different deals to different customers c. The problem i. Balance sheets ii. Time needed for profitability iii. Relatively small size iv. Int’l risk, country, and currency risk v. Sending mixed messages (reference above) d. The solution i. Organization’s performance and ‘best practices’ ii. Regulations, nationally and internationally (e.g. New Zealand housing market) iii. Donor’s ‘right’ assistance – guarantees, TA support, fixed start-up equity iv. Deal: term, return, size, underwriting criteria, monitoring, etc
- I. Looks Like a Duck – What a deal has to look like (5 min) a. Understand the audience b. Different deals to different customers c. The problem i. Balance sheets ii. Time needed for profitability iii. Relatively small size iv. Int’l risk, country, and currency risk v. Sending mixed messages (reference above) d. The solution i. Organization’s performance and ‘best practices’ ii. Regulations, nationally and internationally (e.g. New Zealand housing market) iii. Donor’s ‘right’ assistance – guarantees, TA support, fixed start-up equity iv. Deal: term, return, size, underwriting criteria, monitoring, etc
- I. Looks Like a Duck – What a deal has to look like (5 min) a. Understand the audience b. Different deals to different customers c. The problem i. Balance sheets ii. Time needed for profitability iii. Relatively small size iv. Int’l risk, country, and currency risk v. Sending mixed messages (reference above) d. The solution i. Organization’s performance and ‘best practices’ ii. Regulations, nationally and internationally (e.g. New Zealand housing market) iii. Donor’s ‘right’ assistance – guarantees, TA support, fixed start-up equity iv. Deal: term, return, size, underwriting criteria, monitoring, etc
- I. Looks Like a Duck – What a deal has to look like (5 min) a. Understand the audience b. Different deals to different customers c. The problem i. Balance sheets ii. Time needed for profitability iii. Relatively small size iv. Int’l risk, country, and currency risk v. Sending mixed messages (reference above) d. The solution i. Organization’s performance and ‘best practices’ ii. Regulations, nationally and internationally (e.g. New Zealand housing market) iii. Donor’s ‘right’ assistance – guarantees, TA support, fixed start-up equity iv. Deal: term, return, size, underwriting criteria, monitoring, etc