MICROCAPITAL BRIEF: International Association of Microfinance Investors (IAMFI) Releases Report “Charting the Course: Best Practices and Tools for Voluntary Debt Restructuring in Microfinance”

The International Association of Microfinance Investors (IAMFI), a US-based NGO, recently released a report, “Charting the Course: Best Practices and Tools for Voluntary Debt Restructuring in Microfinance”, that aims to develop guidelines for debt restructuring for microfinance institutions (MFIs).

The key findings indicate that (1) the estimated face value of microlender debt currently in restructuring worldwide is approximately USD 407 million, with an estimated USD 247 million comprising loans made by microfinance investment intermediaries (MIIs); (2) a rising portfolio at risk (PAR) signals deteriorating asset quality and hence the need for debt to be restructured and (3) most of the MFIs that are undergoing restructuring are in Latin America and Eastern Europe.

Recommendations for creditors of MFIs include improving the quality of loan documentation, creating a voluntary creditor group to improve the governance of MFIs, promoting training of MFIs regarding the restructuring process and increasing the level of transparency of the process. The authors also propose best practices for the industry in the form of the following four industry tools: a framework for the creation of voluntary credit groups; a template for inter-creditor agreement; a list of restructuring options available to MFIs; and a review of loan covenants that encompasses the financial, legal and social elements that are unique to microfinance.

The study, which comprises the findings of the IAMFI Microfinance Lenders Working Group (IMFLWG), was financed by global financial services firm Morgan Stanley and contains substantive input from Morgan Stanley; Microfinance Analytics, a US-based structurer of fixed-income microfinance investments; and the US-based University of Michigan Law School’s International Transactions Clinic. IMFLWG consists of representatives from microfinance investment vehicles, financial institutions, limited partner investors, development finance institutions and law firms that are active in microfinance.

The report is available online at: http://www.iamfi.com/documents/IAMFIChartingtheCourse2-2011.pdf

By Medha Ravi, Research Associate

About the International Association of Microfinance Investors (IAMFI):
The International Association of Microfinance Investors (IAMFI) is a New York-based non-governmental organization launched in early 2008. The firm received start-up capital from DOEN Foundation, Gray Matters Capital and the Omidyar Network. IAMFI is a global membership organization with the goal of increasing capital flows to microfinance. IAMFI aims to help commercially oriented microfinance investors achieve their goals by offering industry information from an objective viewpoint, conducting independent research, hosting educational and networking events and facilitating dialogue among industry actors to improve the global environment for microfinance.

Source and Resources:

International Association of Microfinance Investors (IAMI) Report, “Charting the Course: Best Practices and Tools for Voluntary Debt Restructuring in Microfinance”, http://www.iamfi.com/documents/IAMFIChartingtheCourse2-2011.pdf

FierceFinance news article, “Microfinance Industry Issues Collaborative Report on Orderly Debt Restructurings of Microfinance Institutions”, http://www.fiercefinance.com/press-releases/microfinance-industry-issues-collaborative-report-orderly-debt-restructurin

MicroCapital.org story, October 26, 2010, “MICROCAPITAL BRIEF: Indian Microfinance Institutions (MFIs) in Andhra Pradesh Offer Debt Restructuring”, https://www.microcapital.org/microcapital-brief-indian-microfinance-institutions-mfis-in-andhra-pradesh-offer-debt-restructuring/

MicroCapital.org story, October 9, 2007, “MICROCAPITAL STORY: DOEN Foundation Approves $200k Grant to Help Launch and the International Association of Microfinance Investors (IAMFI)”, https://www.microcapital.org/microcapital-story-doen-foundation-approves-200000-grant-to-help-launch-and-the-international-association-of-microfinance-investors-iamfi/

MicroCapital’s Microfinance Universe Profile: International Association of Microfinance Investors (IAMFI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Association+of+Microfinance+Investors+%28IAMFI%29

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

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