MICROCAPITAL BRIEF: Owner of Mibanco, Grupo Accion Comunitaria del Peru (ACP) Breaches Debt Covenant; Entire Peruvian Microfinance Sector Under Strain?

Grupo Accion Comunitaria del Peru (ACP), a Peruvian nonprofit holding company that is the majority shareholder of Peruvian microfinance institution (MFI) Mibanco, recently breached a covenant on a 10-year USD 85 million corporate bond due in 2021, resulting in a downgrade of its credit rating by Fitch, a US-based rating agency. According to Fitch, the downgrade was motivated by the negative performance of ACP’s primary operating subsidiary, Mibanco; foreign-exchange related losses; and the legal and capital-raising challenges ACP may face as a result of the breached debt covenant. Fitch also revised ACP’s rating outlook to “negative” and cautioned that Mibanco’s “…recovery is not expected to be swift; the management expects results to recover within two years.”[1]

According to Mr Hugh Sinclair, a microfinance industry consultant and author of the blog “Confessions of a Microfinance Heretic,” the lackluster performance of Mibanco and the subsequent rating downgrade of ACP are symptomatic of numerous structural challenges facing the microfinance sector in Peru, including over-indebtedness of borrowers, higher than expected loan default rates and decreasing MFI profitability.

ACP owns majority stakes in 23 companies that provide financial services including microfinance, housing, infrastructure and microinsurance in ten Latin American countries. For the year 2012, ACP reported total assets of PEN 6.34 billion (USD 2.49 billion). As of year-end 2012, Mibanco reported to the Microfinance Information Exchange (MIX), the US-based nonprofit data provider, total assets of USD 2.2 billion, a gross loan portfolio of USD 1.9 billion, return on assets of -0.10 percent, return on equity of -0.89 percent and 504,549 active borrowers. Mibanco also reported total deposits of USD 1.5 billion and 325,068 depositors.

By A’kos Szebeni, Research Associate

About Mibanco

Mibanco is a nonprofit private Peruvian bank founded in 1998 that aims to assist the development of micro- and small enterprises (MSEs). Its strategy is to target markets “where demand for micro-credit is highest and supply weakest,” mainly focusing on the Lima and Callao area. Mibanco offers both credit and savings products and employs both individual and solidarity group lending methodologies. Loans are offered for working capital and fixed asset purchases. Loan sizes range from the equivalent of USD 100 to USD 100,000, with loan terms of 3 to 60 months and interest rates ranging from 25 percent to 50 percent per year. As of year-end 2012, Mibanco reported to the Microfinance Information Exchange (MIX), the US-based nonprofit data provider, total assets of USD 2.2 billion, a gross loan portfolio of USD 1.9 billion, return on assets (ROA) of -0.10 percent, return on equity (ROE) of -0.89 percent and 504,549 active borrowers. Mibanco also reported total deposits of USD 1.5 billion and 325,068 depositors.

About Grupo Accion Comunitaria del Peru (ACP)

Established in 1969 as Accion Comunitaria del Peru (ACP), Grupo ACP is a Peruvian nonprofit holding company focusing on social inclusion for low-income households. Grupo ACP owns majority stakes in 23 companies that provide financial services including microfinance, housing, infrastructure and microinsurance in ten Latin American countries: Argentina, Bolivia, Brazil, Ecuador, El Salvador, Guatemala, Mexico, Paraguay, Peru and Uruguay. For the year 2012, ACP reported total assets of PEN 6.34 billion (USD 2.49 billion).

Sources and Additional Resources:

[1] Reuters, “Fitch Downgrades Grupo ACP’s IDR to ‘B’; Outlook Negative,” http://www.reuters.com/article/2013/10/01/fitch-downgrades-grupo-acps-idr-to-b-out-idUSFit67168420131001

[2] Confessions of a Microfinance Heretic, “Trouble Brewing in Peru? MiBanco in Dire Straits,” http://blog.microfinancetransparency.com/

MicroCapital, August 22, 2012, “Microfinance Apexes; Confessions of a Microfinance Heretic; Selling Microinsurance,” https://www.microcapital.org/microfinance-publication-round-up-microfinance-apexes-confessions-of-a-microfinance-heretic-selling-microinsurance/

MicroCapital, October 20, 2012, “Peru’s Grupo ACP Receives Approval to Convert Microfinance Institution Forjadores de Negocios of Mexico into Banco Forjadores,” https://www.microcapital.org/microcapital-brief-perus-grupo-acp-receives-approval-to-convert-microfinance-institution-forjadores-de-negocios-of-mexico-into-banco-forjadores/

MicroCapital, March 21, 2012, “Fitch Improves Outlook to Positive for Grupo ACP, Owner of Mibanco of Peru and Forjadores of Mexico,” https://www.microcapital.org/microcapital-brief-fitch-improves-outlook-to-positive-for-grupo-acp-owner-of-mibanco-of-peru-and-forjadores-of-mexico/

MicroCapital, November 17, 2011, “International Finance Corporation (IFC) Mobilizes $40m to Support Peruvian Microfinance Institution Mibanco,” https://www.microcapital.org/microcapital-brief-international-finance-corporation-ifc-mobilizes-40m-to-support-peruvian-microfinance-institution-mibanco/

MicroCapital, April 5, 2011, “Peruvian Microfinance Institution (MFI) Mibanco Seeks $60m Syndicated Loan from International Finance Corporation (IFC), Grupo ACP Issues $85m in Bonds,” https://www.microcapital.org/microcapital-brief-peruvian-microfinance-institution-mfi-mibanco-seeks-60m-syndicated-loan-from-international-finance-corporation-ifc-grupo-acp-issues-85m-in-bonds/

MicroCapital, March 22, 2011, “Microfinance Information Exchange (MIX) Analyzes Profitability of Microfinance Institutions (MFIs),” https://www.microcapital.org/microcapital-brief-microfinance-information-exchange-mix-analyzes-profitability-of-microfinance-institutions-mfis/

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

MicroCapital Universe Profile: Grupo Accion Comunitaria del Peru (ACP), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grupo+ACP+Inversiones+y+Desarrollo+%28Grupo+ACP%29

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