MICROCAPITAL PAPER WRAP-UP: Microfinance Investment Vehicle (MIV) Performance and Prospects: Highlights from the CGAP 2009 MIV Benchmark Survey by CGAP

By CGAP, published by CGAP, September 2009, 6 pages, available at:
http://www2.cgap.org/gm/document-1.9.38570/CGAPBrief_MIV.pdf

Consultative Group to Assist the Poor (CGAP) has recently published a Benchmark Survey which illustrated that while MIVs grew by 31 percent in 2008, overall MIV performance may deteriorate in 2009 as increased credit risks persist. The survey also revealed MIVs efforts to include environment, social and governance considerations in their investment policies, due diligence, and monitoring.

The survey represents 103 MIVs (90 percent of total MIV assets within the MIV investment universe) with an estimated USD 6.6 billion in assets under management. Growth in MIV assets were supported by both public and private investors as retail investors continued to invest in MIVs as well.

MIV Highlights from 2008-2009

ResponsAbility Global Microfinance Fund (retail-oriented fund) grew by 96 percent in 2008
• 42 percent of funding to MIVs maintained stable asset allocation to microfinance.
• Public investors increased their microfinance commitments and launched two new funds: the USD 250 million Microfinance Enhancement Facility in February 2009 and the USD 100 million Microfinance Growth fund announced by U.S. President Barack Obama at the Summit of the Americas in April 2009.
• 11 new funds were created in 2009 (emphasis on equity investments, new markets such as agriculture)

While fixed-income debt instruments in hard currency (75 percent of total fixed-income investments denominated in Euros or dollars) are still the preferred investments for MIVs, equity investments are growing faster (up by 47 percent) than fixed-income growth. In addition, growth of MIV in Asia (55 percent in 2008) is catching up with Latin America (76 percent of MIV investments are in Latin American/Eastern/Central Asia). CGAP believes that the growth in Asia is largely brought about by the rapid expansion of the Indian microfinance market.

Performance of registered Fixed-Income Mutual Funds (the largest categories of MIVs) have resulted in posted net returns, between 5.8 percent and 6.3 percent in U.S. dollar terms from 2005 to 2007. The average fund size increased from USD 65.1 million to USD 161.2 million but few economies of scale were achieved. The average expense ratio declined marginally from 2.7 percent to 2.2 percent as well.

More than 60 percent of participating MIVs report ESG (Environmental, Social, and Governance) information to their investors with a focus on the environment. MIVs have brought offsets for their carbon emissions, while 41 percent have environmental exclusions.

CGAP expects that the performance of MIVs is likely to deteriorate during 2009 as the result of changing market conditions. Hedging costs for MIVs have risen due to high currency volatility; thus, putting pressure on profits. In return, CGAP states that MIVs are slowing down their growth and putting in place risk management systems to monitor investments, supports and distressed MFIs. CGAP expects that while returns will drop below 3.5 percent in 2009, they anticipate that MIVs will continue to grow at double-digit rates.

By Zoran Stanisljevic

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