Separately, IFMR Capital securitized INR 239 million (USD 4.9 million) in microloans from Indian MFI Grameen Financial Services Private Limited, popularly known as Grameen Koota. Unspecified NBFIs have invested in the senior tranche and IFMR has purchased the subordinated piece.

IFMR Capital is a subsidiary of IFMR Trust, which in turn is an affiliate of the Indian nonprofit Institute for Financial Management and Research (IFMR), a Chennai-based research and educational institution.

By Rohan Trivedi, Research Associate

About IFMR Capital:
IFMR Capital is a subsidiary of IFMR Trust, a private trust that aims to provide Indian enterprises with access to financial services. IFMR Capital’s goal is to provide liquidity and debt capital to the microfinance industry and other sectors that offer products and services for low-income households. IFMR Trust is an affiliate of the Indian nonprofit Institute for Financial Management and Research (IFMR), a Chennai-based research and educational institution.

About Asirvad Microfinance Private Limited:
Established in 2007, Asirvad Microfinance Private Limited is an Indian microfinance institution (MFI) that is registered as a non-banking financial institution (NBFI). As of March 31, 2011, Asirvad reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 23.9 million, a gross loan portfolio of USD 22.7 million, return on assets (ROA) of 4.22 percent, return on equity (ROE) of 16.7 percent and 219,000 active borrowers.

About Disha Microfin Private Limited:
Disha Microfin Private Limited is an Indian microfinance institution (MFI) that was founded in 2009 and is registered as a non-banking financial institution (NBFI). As of March 31, 2011, Disha reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 6.5 million, a gross loan portfolio of USD 5.4 million, return on assets (ROA) of 3.17 percent, return on equity (ROE) of 6.8 percent and 34,700 active borrowers.

About Grameen Financial Services Private Limited (GFSPL):
Grameen Financial Services Private Limited (GFSPL), popularly known as Grameen Koota, was founded in India in 1999 as a project under the nongovernmental organization T Muniswamappa Trust and today is an independent non-banking financial company (NBFC). GFSPL operates in Maharashtra, Karnataka and Tamil Nadu states and offers products and services such as housing microfinance, vocational training loans, workshops and educational centers. As of year-end 2009, GFSPL reports total assets of USD 68.1 million, a gross loan portfolio of USD 52 million and 352,648 active borrowers.

About Mimoza Enterprises Finance Private Limited
Established in 2006, Mimoza Enterprises Finance Private Limited is a microfinance institution (MFI) based in India. It provides loans and insurance to low-income clients with a focus on women. As of March 31, 2011, Mimoza reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 13.3 million, a gross loan portfolio of USD 11.3 million, return on assets (ROA) of 0.82 percent, return on equity (ROE) of 5.39 percent and 89,000 active borrowers.

About Satin Creditcare Network Limited:
Established in 1990, Satin Creditcare Network Limited is an Indian microfinance institution based in Delhi. As of March 31, 2011, Satin reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 66.4 million, a gross loan portfolio of USD 51.7 million, return on assets (ROA) of 0.86 percent, return on equity (ROE) of 4.82 percent and 251,000 active borrowers.

About Suryoday Micro Finance Private Limited:
Suryoday Micro Finance Private Limited is an Indian microfinance institution that provides loans and other financial services to low-income clients. Suryoday was established in 2008 as a non-banking financial institution (NBFI) and has its headquarters in Chennai. As of March 31, 2011, Suryoday reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 13.2 million, a gross loan portfolio of USD 10.8 million, return on assets (ROA) of 2.57 percent, return on equity (ROE) of 5.95 percent and 87,000 active borrowers.

About SV Creditline Private Limited:
SV Creditline Private Limited is an Indian microfinance institution (MFI) based in Gurgaon, Haryana, that provides loans and insurance to low-income households. As of March 31, 2011, SV Creditline reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 9.8 million, a gross loan portfolio of USD 8 million, return on assets (ROA) of -14 percent, return on equity (ROE) of -33 percent and 63,000 active borrowers.

About Utkarsh Micro Finance Private Limited:
Utkarsh Micro Finance Private Limited is a microfinance institution (MFI) based in Varanasi, India. It aims to provide access to credit in the northern Indian states of Uttar Pratesh, Madhya Pradesh and Bihar. As of September 2011, Utkarsh does not report data to standard platforms such as the US-based nonprofit Microfinance Information Exchange.

Sources and Additional Resources:

[1] IFMR Capital Blog: “IFMR Capital completes its largest Multi-Originator securitisation transaction”, http://www.ifmr.co.in/blog/2011/09/21/ifmr-capital-completes-its-largest-multi-originator-securitisation-transaction/

MicroCapital.org story, August 9, 2011: “MICROCAPITAL BRIEF: Indian Microfinance Institution Satin Creditcare Reports $22m in Capital Raises, Securitizations; Upgraded by CARE Ratings to ‘MFI 2’”, http://www.microcapital.org/microcapital-brief-indian-microfinance-institution-satin-creditcare-reports-22m-in-capital-raises-securitizations-upgraded-by-care-ratings-to-“mfi-2”/

MicroCapital.org story, June 3, 2011: “MICROCAPITAL BRIEF: Costs Rise for Indian Microfinance Institutions (MFIs) Looking to Securitize Loan Portfolios From 10% to Over 12%”, http://www.microcapital.org/microcapital-brief-costs-rise-for-indian-microfinance-institutions-mfis-looking-to-securitize-loan-portfolios-from-10-to-over-12/

MicroCapital.org story, May 24, 2011: “MICROCAPITAL BRIEF: IFMR Capital Structures $3.8m Securitization of Microfinance Loans Originated by Ujjivan Financial Services of India”, http://www.microcapital.org/microcapital-brief-ifmr-capital-structures-3-8m-securitization-of-microfinance-loans-originated-by-ujjivan-financial-services-of-india/

MicroCapital Universe Profile: IFMR Capital, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=IFMR+Capital

MicroCapital Universe Profile: Asirvad Microfinance Private Limited, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asirvad+Microfinance+Pvt+Ltd

MicroCapital Universe Profile: Disha Microfin Private Limited, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Disha+Microfin+Private+Limited

MicroCapital Universe Profile: Mimoza Enterprises Finance, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Mimoza+Enterprises+Finance+%28Mimo%29

MicroCapital Universe Profile: Grameen Financial Services Private Limited (GFSPL), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Financial+Services+Private+Limited

MicroCapital Universe Profile: Satin Creditcare Network Limited, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Satin+Creditcare+Network+Ltd

MicroCapital Universe Profile: Suryoday Micro Finance Private Limited, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Suryoday+Micro+Finance+Private+Limited

MicroCapital Universe Profile: SV Creditline Private Limited, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SV+Creditline+Private+Limited

MicroCapital Universe Profile: Utkarsh Micro Finance Private Limited, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Utkarsh+Micro+Finance+Private+Limited

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

According to Richard Robb, co-founder of CRC, “this transfers risk off banks and lets investors take the risk. If something bad does happen, the bank can continue to perform its functions and take the losses, which they’re ready for” [2].

The International Finance Corporation (IFC), the private-investment arm of the World Bank Group, is the only investor that has been named so far, with an initial contribution of USD 100 million [1].

By Rohan Trivedi, Research Associate

About International Finance Corporation (IFC):
A member of the World Bank Group, the International Finance Corporation (IFC) offers loans, equity investments, advisory services and technical assistance to private companies with the intent of alleviating poverty and promoting open and competitive markets in developing countries. As of 2011, IFC has 182 member countries that drive its policies and approve disbursements. As of June 30, 2010, IFC reports net income of USD 1.75 billion, total assets of USD 61 billion, return on assets of 3.1 percent and total investment mobilization of USD 18.4 billion to 528 projects.

About Christofferson, Robb and Company:
Christofferson, Robb and Company (CRC) is a private UK- and US-based money management company that focuses on investments in global credit markets. CRC works to minimize credit risk for its clients by transferring capital into managed investment funds. CRC’s investments are targeted towards small and medium-sized enterprises (SMEs), housing finance and alternative energy. As of August 2011, CRC reports approximately USD 1.5 billion in net assets.

Sources and Additional Resources:

[1] IFC Press Release: “IFC Invests $100 Million in Innovative Fund to Boost Loans to SMEs in Emerging Markets”, http://ifcext.ifc.org/IFCExt/Pressroom/IFCPressRoom.nsf/0/124C29B0DAF5D3F185257909004D72DD

[2] The Financial Times: “World Bank unit invests in hedge fund”, http://www.ft.com/intl/cms/s/0/1b0ff7ac-dc6d-11e0-8654-00144feabdc0.html#axzz1Y1kfecPu

MicroCapital Universe Profile: International Finance Corporation (IFC), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29

MicroCapital Universe Profile: Christofferson, Robb and Company (CRC), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Christofferson+Robb+and+Company+%28CRC%29

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

Investors in the fund include: the African Development Bank (AfDB), a Tunisia-based development finance institution (DFI); the Netherlands Development Finance Company (FMO in Dutch), a public-private partnership; the International Finance Corporation (IFC), the private-investment arm of the World Bank Group; CDC Enterprises, a French institutional investor; the German Investment Corporation (DEG in German), a member of Germany’s KfW Bank Group; the Investment and Promotion Company for Economic Cooperation (PROPARCO in French), a French DFI; the Swiss Investment Fund for Emerging Markets (SIFEM), a Swiss DFI; the Belgian Investment Company for Developing Countries (BIO), a public-private partnership between the Ministry for Development Cooperation and the Belgian Corporation for International Investment; and Averroes Finance II, a French fund of funds. The level of investment committed by each institution has not been released.

As of August 2011, Tuninvest-Africinvest manages 10 investment funds with approximately USD 550 million in assets under management.

By Rohan Trivedi, Research Associate

About the Tuninvest-Africinvest Group:
The Tuninvest-Africinvest Group is a private equity company that targets growth capital investments in small and medium-sized enterprises (SMEs) across North and Sub-Saharan Africa. Both Tuninvest-Africinvest and its parent institution, the Integra Partners financial services group, were established in Tunisia in 1994. As of August 2011, Tuninvest-Africinvest manages 10 investment funds with approximately USD 550 million in assets under management.

Sources and Additional Resources:

[1] BIO Press Release: “BIO participates in the closing of MPEF III”, http://www.bio-invest.be/en/news/29-bio-participates-in-the-closing-of-mpef-iii.html

MicroCapital.org story, May 12, 2009: “MICROCAPITAL STORY: European Development Finance Institutions Part 3: The Netherlands Development Finance Company (FMO) Invests Over USD 160 million in Microfinance in Last Two Years”, http://www.microcapital.org/microcapital-story-european-development-finance-institutions-part-3-the-netherlands-development-finance-company-fmo-invests-over-usd-160-million-in-microfinance-in-last-two-years/

MicroCapital Universe Profile: Tuninvest-Africinvest Group, http://www.microcapital.org/microfinanceuniverse/tiki-indx.php?page=Tuninvest-Africinvest+Group

MicroCapital Universe Profile: African Development Bank (AfDB), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=African+Development+Bank++%28AfDB%29

MicroCapital Universe Profile: Netherlands Development Finance Company (FMO), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Netherlands+Development+Finance+Company+%28FMO%29

MicroCapital Universe Profile: International Finance Corporation (IFC), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29

MicroCapital Universe Profile: Deutsche Investitions-und Entwicklungsgesellschaft GmbH (DEG), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Deutsche+Investitions-und+Entwicklungsgesellschaft+GmbH+%28DEG%29

MicroCapital Universe Profile: PROPARCO, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=PROPARCO

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

In their third annual Global Microfinance Valuation Survey, US-based investment bank JP Morgan and nonprofit research center CGAP (Consultative Group to Assist the Poor) provide an overview of the financial standing of microfinance institutions (MFIs) around the world. Consistent with the title “Discovering Limits,” the authors argue that “no longer can microfinance investment be viewed as an exclusively do-good, low-risk, relative safe haven.”

In the first section of the paper, the authors focus on the global microfinance sector and private equity participation therein, using a dataset composed of 238 equity transactions that closed between 2005 and 2010, involving 110 MFIs in 53 countries. Private equity investment in 2010 was dominated by Latin America and the Caribbean (56 percent), with South and East Asia trailing (33 percent) and Europe and Central Asia further behind (7 percent). The only year-on-year increase, however, occurred in the South and East Asia region.

As microfinance markets have begun to mature, many investors are looking to exit the market by selling their stakes, while fewer MFIs are interested in raising growth capital. Primary issuances such as initial public offerings have slowed and have been replaced with secondary market activity, which now accounts for 70 percent of the value of transactions, up from 12 percent in 2007.

The authors find that earnings multiples, which have historically been a key valuation metric for investors, have lost their reliability over the last year, as a combination of write-offs and increased loan-loss reserves has resulted in ratios that do not reflect underlying quality institutional quality. In Europe and Central Asia, five out of seven transactions involved an MFI with negative earnings.

The report suggests that the forward book value multiple (price-to-book value), has become a more consistent and accurate indicator of performance. After peaking at an average value of 1.7 in 2009, the forward book value multiple fell to 1.6 in 2010, which is commensurate with the authors’ view of microfinance markets. MFIs in Mongolia, Cambodia, Peru and Tanzania, for example, have seen their price-to-book ratios exceed their historical median, justifying strong investor interest and a willingness to pay a premium for quality. Institutions in other countries, such as Nicaragua, Nigeria and Bolivia, have stagnated in value, as political and regulatory uncertainty has contributed to fading investor interest.

South and East Asian institutions have witnessed the greatest volatility in book value multiples, while Latin American and Caribbean MFIs have barely fluctuated from a multiple of 1.0. Whereas India was until recently considered a high-potential growth market, valuations have decreased to the world median book value, and the authors expect a further correction due to regulatory uncertainty, pervasive over-indebtedness and over-reliance on microcredit. On the other hand, Peru’s microfinance sector has passed through its growth phase and holds a significant trove of deposits, accompanied by uniform regulation that includes a functional credit bureau – all signs that point to a stable valuation, even if debt loads are reportedly rising.

The second half of the report focuses on an index of 11 “lower income finance institutions” or LIFIs, which serve as a sample of publicly listed MFIs: Bank Rakyat, Bank Danamon and Bank Tabungan Pensiunan Nasional (BTPN) of Indonesia; SKS Microfinance of India; African Bank and Capitec, both of South Africa; Kenya’s Equity Bank; Compartamos Banco and Financiera Independencia of Mexico; First Cash Financial, which is based in the US; and International Personal Finance (IPF) of the UK. Because the index is weighted by market capitalization and only includes a smattering of institutions, the authors acknowledge that it is of limited use as a proxy for country performance or market quality (for instance, Bangladesh, Peru and Cambodia are developed microfinance markets but are omitted entirely).

The LIFI index is benchmarked against the MSCI World Financials index, which includes a broad mix of global financial stocks, and the MSCI Emerging Markets Banks index, which is a basket of financial institutions in developing countries. From November 2003 until October 2010, LIFIs consistently outperformed the other indices including during the global financial downturn that began in 2008. But from the time that India’s Andhra Pradesh crunch began in late 2010 until the report’s publication in July 2011, LIFI performance became more volatile and excess returns were harder to come by. In years when the LIFI index has lagged its counterparts, the problems have typically been confined to just one of the eleven institutions (such as Bank Rakyat in 2005, Compartamos in 2007 and SKS in 2010).

In terms of valuation, the authors find that companies in the LIFI index tend to have a lower earnings multiple (12.9 times) and higher book value (4.2 times) than the companies included in the MSCI World Financials index, which had earnings and book multiples of 14.3 and 2.4, respectively. According to the report, return on equity for the LIFI group has increased from 22 percent to 26 percent over the last year, resulting in the higher book value multiple and a “slight relative overvaluation.”

The authors anticipate a gradual stabilization in the price and book multiples of MFIs as markets mature, growth slows and consolidation spreads. They expect that price variations among countries will increase according to local market and company characteristics. As an example, they cite the so-called crisis in India’s microfinance sector as having virtually no effect on companies or countries in other parts of the world. For investors seeking high returns, they recommend emerging markets like China, Nigeria and Brazil, which are “earlier in their development cycle.”

By Rohan Trivedi, Research Associate

About CGAP (Consultative Group to Assist the Poor):
Housed at the World Bank, CGAP is an independent policy and research center dedicated to providing financial access for the world’s poor. CGAP is supported by approximately thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.

Sources and Additional Resources:

MicroCapital.org story, April 27, 2010: “MICROFINANCE PAPER WRAP-UP: All Eyes on Asset Quality: Microfinance Global Valuation Survey 2010 Published by CGAP, Written by Xavier Reille, Christoph Kneiding, Daniel Rozas, Nick O’Donohoe and Frederic Rozeira de Mariz”, http://www.microcapital.org/microfinance-paper-wrap-up-all-eyes-on-asset-quality-microfinance-global-valuation-survey-2010-published-by-cgap-written-by-xavier-reille-christoph-kneiding-daniel-rozas-nick-o’donohoe-a/

MicroCapital.org story, March 16, 2010: “MICROCAPITAL BRIEF: Microfinance Institution (MFI) Equity Valuations Rise in 2009 as Portfolio Quality Falls, Says Report by JP Morgan and CGAP (Consultative Group to Assist the Poor)”, http://www.microcapital.org/microcapital-brief-microfinance-institution-mfi-equity-valuations-rise-in-2009-as-portfolio-quality-falls-says-report-by-jp-morgan-and-cgap-consultative-group-to-assist-the-poor/

MicroCapital Universe Profile: Bank Rakyat Indonesia, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bank+Rakyat+Indonesia+%28BRI%29

MicroCapital Universe Profile: Bank Danamon, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bank+Danamon

MicroCapital Universe Profile: Bank Tabungan Pensiunan Nasional (BTPN), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bank+Tabungan+Pensiunan+Nasional+%28BTPN%29

MicroCapital Universe Profile: SKS Microfinance, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

MicroCapital Universe Profile: Equity Bank, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Equity+Bank

MicroCapital Universe Profile: Compartamos Banco, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Compartamos+Banco

MicroCapital Universe Profile: Financiera Independencia, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Financiera+Independencia

MicroCapital Universe Profile: CGAP (Consultative Group to Assist the Poor), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

This document examines the landscape for foreign investment in microfinance and evaluates the financial and social performance of foreign capital in microfinance. The analysis considers data including CGAP’s “Annual Survey on Foreign Investment” and the Microfinance Information Exchange (MIX) Market’s Funding Structure Database.

The authors consider the investment landscape within the following three categories:

1) Development Finance Institutions (DFIs): DFI investment, which has grown from USD 1.7 billion in 2006 to USD 7.5 billion in 2010, constitutes approximately half of foreign investment in microfinance.  The authors conclude that these investments, which are largely in the form of hard-currency, fixed-income (debt) instruments, are concentrated in the larger, more established microfinance institutions (MFIs) of Eastern Europe and Central Asia (ECA) and Latin America and the Caribbean (LAC).

2) Institutional Investors: Accounting for approximately 30 percent of foreign investment, this group includes a broad range of institutions and funds, including international banks, private equity funds, pension funds and insurance companies. According to the authors, some international banks are now considering offering microfinance products through their own banking networks, thus directly making microfinance investments in local currencies, and diversifying their portfolios through investments in agriculture, health renewable energy.

3) Retail investors: The authors cite social performance as the primary driving force behind retail investments, which account for approximately 16 percent of foreign investment and are mainly raised through financial cooperatives, such as Oikocredit of the Netherlands, and public placement funds, such as responsAbility Social Investments of Switzerland. The authors state that the growth of retail investments have been hampered by regulations that limit the distribution of microfinance investment funds to the retail market in the United States and Europe.

The authors’ findings indicate that approximately 50 percent of cross-border investment is channeled through microfinance investment intermediaries (MIIs), with microfinance investment vehicles (MIVs) comprising most of this volume. The authors argue that competition among asset managers will lead to the consolidation of microfinance asset management firms, thereby bringing down transaction costs and creating efficiency gains for investors and investees.

The authors further examine the financial performance of fixed-income and equity investments, the two main forms of investment in microfinance. Fixed-income agreements, which represent 85 percent of all MIV investment and 70 percent of direct DFI investment, recorded a historic low return of 2.5 percent in 2010. The authors attribute the low returns to: 1) excess supply of and stagnating demand for foreign debt and 2) lower portfolio quality in some markets leading to higher defaults, thereby necessitating the need for higher loan loss provisioning. The authors expect the low returns on fixed-income investments to continue over the next few years.

Foreign equity, which addresses the relative lack of risk capital within emerging markets, recorded a compounded annual growth rate of 60 percent over the last four years, exceeding the aggregate demand of MFIs that are investment ready. Furthermore, “crises” in markets such as Bosnia and Herzegovina, Nicaragua and India and the overall slowdown in the sector are causing equity investors to revise their return expectations downwards. The authors also cite an emergence of domestic equity investors in developing countries and the down-market expansion of commercial banks through acquisitions of MFIs in mature markets.

The metric used by the authors to measure the social performance of foreign investment is financial inclusion. The authors suggest that a small number of countries in the ECA and LAC regions receive the bulk of foreign investment and experience relatively high levels of financial inclusion. The authors argue that while foreign investment has aided the growth of investee MFIs and helped them to scale up in these regions, investors need to do more to invest in the undeserved markets of Africa and Asia. The authors further state that there is evidence in some markets – particularly Bosnia and Herzegovina and Nicaragua – of the existence of excess capital and insufficient oversight.

In conclusion, following the lower performance of microfinance investments in 2009-2010 and the downturns in Bosnia and Herzegovina, Nicaragua and, most recently, India, the authors indicate the following lessons have been learned:

•Risk-adjusted returns on microfinance investments should be reassessed in the context of the “crises”

•There are disparities among asset managers, and greater emphasis should be placed by investors on engaging those managers with sound investment strategies, robust investment processes and a commitment to social performance

•Increasingly there is a trend whereby funds are diversifying into the broader impact-investment class such as into fair trade, health, education, agriculture and renewable energy.

While this is viewed as a measure to diversify investment portfolios and risk, the authors note that these areas of impact investing require a different set of evaluation techniques and that the returns on such investments are less predictable than the returns from sound MFIs.

By Medha Ravi, Research Associate

About CGAP (Consultative Group to Assist the Poor):
Housed at the World Bank Group, CGAP (Consultative Group to Assist the Poor) is an independent policy and research center dedicated to facilitating the provision of financial access to poor people worldwide. CGAP is supported by approximately thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.

The following investment fund managers that work in microfinance in developing countries were included in the 2011 ImpactAssets 50: Absolute Portfolio Management; ACCION International; Acumen Fund; Bamboo Finance; BlueOrchard Finance; Calvert Social Investment Foundation; Community Investment Partners; Creation Investments; Developing World Markets; Elevar Equity; Equator Capital Markets; Global Partnerships Limited; Grassroots Capital Management; IGNIA Partners; Incofin Investment Management; LeapFrog Investments; MicroVest Capital Management; Minlam Asset Management; Sarona Asset Management; Shared Interest; Symbiotics Asset Management; and Triodos Investment Management.

The full ImpactAssets 50 list can be accessed at: http://www.impactassets.org/impactassets-50

By Rohan Trivedi, Research Associate

About ImpactAssets:
ImpactAssets is a nonprofit company that specializes in impact investing, a growing sector that allocates funds to business and companies that earn financial returns in conjunction with positive social and/or environmental benefits.. In addition to placing its own social and environmental investments, ImpactAssets provides knowledge resources for the impact investment sector and publishes the “ImpactAssets 50,” an annual list of impact fund managers. ImpactAssets was launched as an independent organization in 2009 by the US-based nonprofit Calvert Foundation and reports USD 60 million in assets under management as of June 2011.

About Calvert Social Investment Foundation:
The Calvert Social Investment Foundation is a US-based nonprofit established in 1995 with the support of the Ford, MacArthur and Mott Foundations. Investment in the fund comes in the form of donations and notes held by individuals and organizations, including Washington Mutual Bank, Ameritas Life Insurance Corporation and Gray Ghost Microfinance Fund LLC. As of June 2011, the Calvert Foundation reported USD 280 million in assets under management.

Sources and Additional Resources:

[1] ImpactAssets: “2011 ImpactAssets 50”, http://www.impactassets.org/impactassets-50

MicroCapital Universe Profile: ImpactAssets, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=ImpactAssets

MicroCapital Universe Profile: Calvert Social Investment Foundation, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Calvert+Social+Investment+Foundation

MicroCapital Universe Profile: ACCION International, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=ACCION+International

MicroCapital Universe Profile: Acumen Fund, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Acumen+Fund

MicroCapital Universe Profile: BlueOrchard Microfinance Investment Managers, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=BlueOrchard+Microfinance+Investment+Managers

MicroCapital Universe Profile: Creation Investments Capital Management LLC, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Creation+Investments+Capital+Management+Limited+Liability+Corporation+%28LLC%29

MicroCapital Universe Profile: Developing World Markets (DWM), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Developing+World+Markets+%28DWM%29

MicroCapital Universe Profile: Global Partnerships (GP), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Global+Partnerships

MicroCapital Universe Profile: Grassroots Capital, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grassroots+Capital

MicroCapital Universe Profile: IGNIA, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=IGNIA

MicroCapital Universe Profile: Incofin Investment Management, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Incofin+Investment+Management+%28Incofin+IM%29

MicroCapital Universe Profile: LeapFrog Investments, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=LeapFrog+Investments

MicroCapital Universe Profile: MicroVest Capital Management, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=MicroVest+Capital+Management

MicroCapital Universe Profile: Minlam Microfinance Fund, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Minlam+Microfinance+Fund

MicroCapital Universe Profile: Sarona Asset Management, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Sarona+Asset+Management

MicroCapital Universe Profile: Symbiotics Group, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Symbiotics+Group

MicroCapital Universe Profile: Triodos Investment Management, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Triodos+Investment+Management

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

On the second day of the conference, a panel discussed the fine balance between mission, profit and impact in microfinance. The heated debate, moderated by Adam Davidson of Washington, District of Colombia-based National Public Radio, raised the issue of whether a triple bottom line consisting of social, economic and human value returns can really be maintained in the microfinance arena.

Speaking as proponents of the for-profit side, Carlos Danel, co-founder and chief executive of Compartamos Banco, a publicly traded microfinance institution in Mexico, and Errol Damelin, founder and chief executive at Wonga, a British online provider of short-term loans, both agreed that the triple bottom line can be maintained and that the core objective of a microfinance institution, to serve clients with products structured to meet their needs, ultimately drives both profit and a positive impact to society. Mr Danel defined social value loosely as growth and agreed with Ananya Roy, a professor at the Department of City and Regional Planning at the University of California-Berkeley, that the mission of microfinance has been stretched too thin to include anything from poverty alleviation and women’s empowerment to global warming and terrorism prevention.

As skeptics of the for-profit model, Eric Weaver, chief executive of Opportunity Fund, and Felix Salmon, a financial blogger at US-based media and financial data firm Thomson Reuters, warned that growth, as Mr Danel defined it, means serving as many people as possible and building more debt, an objective that should be taken with caution in light of the recent US financial crisis.

The panel also discussed the issue of whether the nonprofit microfinance model is sustainable. According to Mr Damelin, if an entity were not commercially viable, it would not be sustainable either. Professor Roy proposed a model involving government subsidy as a potential poverty solution whereby the poor receive subsidies to build equity, just as the rich currently do in the US in areas including home purchases.

At the end of the day, panel participants agreed that strong governance remains the key factor in ensuring customer protection, whether an organization is built with a nonprofit or for-profit structure. Furthermore, Professor Roy argued that financial services are not enough to help poor people escape poverty and should be supplemented by financial and business education.

Other major topics discussed at the conference included what the US can learn from the international microfinance arena, the need to match clients with the correct financial products and the use of randomized control trials (RCT) to identify successful microfinance models. Participants from the nonprofit and for-profit arenas seemed to agree on the following priorities: ensuring unbanked people gain access to financial services appropriate to their needs and implementing regulatory measures to protect the rights of clients.

By Julie Moksim, Research Associate

About Opportunity Fund: Opportunity Fund is a provider of microloans and microsavings that is based in the US state of California. Opportunity Fund’s mission is to improve the economic status of low-income individuals by providing them with the tools to earn, save and invest. The organization primarily serves people in the San Francisco Bay area by offering them access to loans to finance affordable homes, financial education, savings plans and incentives, microloans and loans to finance community facilities such as healthcare clinics and schools. As of 2010, Opportunity Fund reports total assets of USD 45 million.

About Kiva: Incorporated in 2005, Kiva is a US-based online portal allowing individuals to make loans to microfinance institutions (MFIs), which then use the money to make loans to people with low incomes. Kiva partners with microfinance institutions (MFIs) in 60 developing and rich countries. As of April 2011, Kiva reports that it has engaged 915,000 individual lenders, 81 percent of loans have been made to women entrepreneurs, the repayment rate on these loans is 98.7 percent and the average loan size is USD 382.

About ACCION: ACCION International is a private, US-based nonprofit organization with the mission of alleviating poverty by providing microenterprise loans, business training and other financial services to its clients. ACCION was founded in 1961 and issued its first microloan in 1973 in Brazil. ACCION’s partner microfinance institutions provide loans to men and women entrepreneurs in 23 countries in Latin America, Asia, Africa and the United States. As of 2009, ACCION’s network serves 3.3 million active clients and has an aggregated gross loan portfolio of USD 31.8 billion.

About Compartamos Banco: Compartamos Banco is a microfinance bank based in Mexico that was founded in 1990. It offers group and individual loans in rural and urban areas. Banco Compartamos provides loans to low-income people for business and home improvement purposes. It also offers voluntary savings and insurance products. The company made its initial public offering (IPO) in 2007 on the New York and Mexican stock exchanges in a transaction worth USD 467 million, and, as of December 2010, has a total loan portfolio of MXN 9.76 billion (the equivalent of USD 803 million).

Sources and Additional Resources:

Microfinance Event: Opportunity Fund, ACCION and Kiva Present Microfinance USA Conference 2011 in New York, May 23 – 24, http://www.microcapital.org/microfinance-event-opportunity-fund-accion-and-kiva-present-microfinance-usa-conference-2011-in-new-york-may-23-24/

MicroCapital’s Microfinance Universe Profile: Opportunity Fund

http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Opportunity+Fund

MicroCapital’s Microfinance Universe Profile: Kiva

http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Kiva

MicroCapital’s Microfinance Universe Profile: ACCION

http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=ACCION+International

MicroCapital’s Microfinance Universe Profile: Compartamos Banco

http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Compartamos+Banco

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

The fund is a successor to Incofin’s Rural Impulse Fund I, a EUR 30 million (USD 38 million) fund that was launched in August 2007 and invests in MFIs deemed commercially viable. Incofin’s Rural Impulse Fund II was launched in June 2010 with EUR 86 million (USD 105 million) from numerous DFIs, private banks and investors including the European Investment Bank (EIB), the World Bank Group’s International Finance Corporation (IFC) and BNP Paribas Fortis of Belgium, among others.

As of May 31, 2011, Rural Impulse Fund II has invested EUR 25 million (USD 35 million) in 10 countries and 16 MFIs with an aggregate outreach of 592,000 clients.

By Rohan Trivedi, Research Associate

About Incofin Investment Management (Incofin IM):
Incofin Investment Management is a private Belgian company that develops and manages funds investing in microfinance institutions (MFIs) in developing countries. As of May 2011, Incofin manages six facilities with total assets of EUR 300 million (approximately USD 425 million). To date, Incofin has invested a total of EUR 158 million (approximately USD 225 million) in 91 MFIs in 38 countries.

About The Incofin Rural Impulse Funds (RIFs):
The Incofin Rural Impulse Funds (RIF) were launched by Incofin Investment Management to invest in rural microfinance institutions (MFIs) that are deemed commercially viable. The two funds include Rural Impulse Fund I and Rural Impulse Fund II. They target both farm and non-farm populations in small towns and villages. The funds invest primarily through loans, though they make equity investments and guarantees as well. Rural Impulse Fund I has invested EUR 30.8 million (approximately USD 40.6 million) in MFIs across 19 countries as of November 2010. Rural Impulse Fund II, on the other hand, has raised EUR 86 million (USD 105 million) of its stated goal of EUR 120 million (USD 170 million) in assets and has invested EUR 25 million (approximately USD 35 million) in 16 MFIs across 10 countries as of May 2011.

About PROPARCO:
Established in 1977, Société de Promotion et de Participation pour La Coopération Economique (PROPARCO – The Investment and Promotions Company for Economic Cooperation) is a development finance institution based in Paris, France, that is jointly held by the Agence Francaise de Developpement (AFD), a development finance institution of the French government, and private shareholders. PROPARCO’s mission is “to be a catalyst for private investment in developing countries which targets growth, sustainable development and reaching the [United Nations’] Millennium Development Goals (MDGs).” In 2009, PROPARCO disbursed EUR 1.1 billion (USD 1.4 billion) for 80 projects in 30 countries.

About Storebrand:
Storebrand is a Norwegian financial institution with operations in the Nordic countries of Denmark, Finland, Iceland, Norway and Sweden. Storebrand’s core products are life insurance, property and casualty insurance, asset management and banking. As of December 31, 2010, Storebrand reported total assets of NOK 390 billion (USD 66 billion).

Sources and Additional Resources:

[1] Press Release submitted by Incofin to MicroCapital, May 2011

MicroCapital.org story, June 8, 2010: “MICROCAPITAL BRIEF: The European Investment Bank, The International Finance Corporation (IFC), KfW Entwicklungsbank, The Belgian Investment Company for Developing Countries (BIO), The Netherlands Development Finance Company (FMO) and Incofin Investment Management Launch Rural Impulse II, a Rural Microfinance Fund”, http://www.microcapital.org/microcapital-brief-the-european-investment-bank-the-international-finance-corporation-ifc-kfw-entwicklungsbank-the-belgian-investment-company-for-developing-countries-bio-the-netherlands-deve/

MicroCapital Universe Profile: Incofin Investment Management (Incofin IM), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Incofin+Investment+Management+%28Incofin+IM%29

MicroCapital Universe Profile: Incofin Rural Impulse Funds (RIFs), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Incofin+Rural+Impulse+Funds+%28RIFs%29

MicroCapital Universe Profile: PROPARCO, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=PROPARCO

MicroCapital Universe Profile: Storebrand, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Storebrand

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

By Jacqueline Foelster, Research Associate

About Grameen Koota: Grameen Koota, founded in 1999 as a division of Grameen Financial Services Private Limited, is a microfinance institution (MFI) based in Bangalore, India. Grameen Koota began with funding from Grameen Trust, an India-based non-governmental organization that supports microfinance globally through funding, training and technical assistance. Grameen Koota provides credit to low-income households through 117 branches in the Indian states of Karnataka and Maharashtra. As of March 2010 Grameen Koota reports total assets of USD 68.1 million, a gross loan portfolio of USD 52.1 million, return on assets of 0.40 percent and return on equity of 2.56 percent.

About Bandhan Microfinance: Bandhan Financial Services Private Limited is a microfinance institution (MFI) based in Kolkata, India that was founded in 2002. As of 2011, it operates approximately 1,550 branches in 18 states in India. It offers microenterprise loans as well as loans for individuals to pay for health emergencies. According to the US-based nonprofit Microfinance Information Exchange (MIX), Bandhan Financial Services reported total assets of USD 424 million, a gross loan portfolio of USD 333 million, 2.3 million active borrowers, return on equity of 38.2 percent and return on assets of 3.52 percent in 2009.

About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI) that was launched in 1998 and delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company that converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance reported total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets of 6.3 percent and return on equity of 22.4 percent.

Source and Additional Resources:

[1] The Economic Times, “Microfinance institutions use women cluster loans to raise capital”, http://articles.economictimes.indiatimes.com/2011-05-03/news/29499559_1_securitisation-deals-sks-microfinance-grameen-koota

MicroCapital.org Brief, May 3, 2011, “Women Lose Out as Moneylenders Regain Ground From Indian Microfinance Institutions (MFIs) Pinched by Liquidity Crunch”, http://www.microcapital.org/microcapital-brief-women-lose-out-as-moneylenders-regain-ground-from-indian-microfinance-institutions-mfis-pinched-by-liquidity-crunch/

MicroCapital.org Brief, August 31, 2010, “Daniel Rozas and Vinod Kothari Weigh in on Risks of Microfinance Securitization”, http://www.microcapital.org/microcapital-brief-daniel-rozas-and-vinod-kothari-weigh-in-on-risks-of-microfinance-securitization/

MicroCapital.org Brief, July 12, 2010, “Reserve Bank of India Proposes Regulation for Securitizations by Microfinance Institutions”, http://www.microcapital.org/microcapital-brief-reserve-bank-of-india-proposes-regulation-for-securitizations-by-microfinance-institutions/

MicroCapital.org Brief, October 1, 2010, “Avendus Capital of India Invests $8.25m in Securitized Microloans”, http://www.microcapital.org/microcapital-brief-avendus-capital-of-india-invests-8-25m-in-securitized-microloans/

MicroCapital.org Brief, January 20, 2010, “IFMR Capital Structures $6.5m Securitization of Microloans Originated by Four Microfinance Institutions in India”, http://www.microcapital.org/microcapital-brief-ifmr-capital-structures-65m-securitization-of-microloans-originated-by-four-microfinance-institutions-in-india/

MicroCapital Universe Profile: Grameen Koota, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Koota

MicroCapital Universe Profile: Bandhan Microfinance, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Microfinance

MicroCapital Universe Profile: SKS Microfinance, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/

The author argues that while providers of mobile money services have prioritized payments, budgeting tools represent a missing link. He further states that phones offer an unparalleled level of immediacy and interactivity with customers by acting as a passbook, a calculator and as a channel for alerts and reminders. According to Mr Mas, “Mobile money is not just a cost reduction story; it ought to be a service creation and integration story as well. Mobile phones offer the possibility for banks to maintain a constant presence in their customers’ lives, helping them budget for today and plan for tomorrow” [1].

By Medha Ravi, Research Associate

About CGAP (Consultative Group to Assist the Poor):
Housed at the World Bank Group, CGAP (Consultative Group to Assist the Poor) is an independent policy and research center dedicated to facilitating the provision of financial access to poor people worldwide. CGAP is supported by approximately thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.

Source and Resources:

CGAP (Consultative Group to Assist the Poor) Microfinance Blog, “Delivering on the Savings Promise of Mobile Money”, http://microfinance.cgap.org/2011/04/26/delivering-on-the-savings-promise-of-mobile-money/

MicroCapital.org story, February 15, 2011, “MICRPCAPITAL BRIEF: CGAP (Consultative Group to Assist the Poor) Explores Over-Indebtedness in Microfinance Through New Blog Series”, http://www.microcapital.org/microcapital-brief-cgap-consultative-group-to-assist-the-poor-explores-over-indebtedness-in-microfinance-through-new-blog-series/

MicroCapital.org story, April 25, 2011, “MICROCAPITAL BRIEF: CGAP (Consultative Group to Assist the Poor) Explores Savings On Microfinance Blog”, http://www.microcapital.org/microcapital-brief-cgap-consultative-group-to-assist-the-poor-explores-savings-on-microfinance-blog/

MicroCapital Microfinance Universe Profile: CGAP (Consultative Group to Assist the Poor), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/