Micro Finance Bank of Azerbaijan (MFBA), a central Asian and eastern European microfinance institution (MFI), has issued USD 11.4 million in bonds to international capital investors. Developing World Markets (DWM), a US-based asset management firm, sponsored and arranged the investment deal, which took place in Luxembourg, through a specially created investment vehicle titled MFBA Bond I. The debt accrued by MFBA through the bond issuance has been categorized as senior debt, with a five-year term for repayment. MFBA will use the loaned capital to finance micro loans for Azeri small businesses.
Financing microfinance operations through securitization has been a method utilized by several prominent investors and microfinance investment funds. In May of this year, US-based investment bank Morgan Stanley teamed up with BlueOrchard Finance, a microfinance fund investment company, and issued USD 108 million in bonds to finance 13 MFIs globally. More recently, in late June, PT Permodalan Nasional Madani (PNM), an Indonesian state-owned enterprise which funds microfinance, began issuing bonds that total USD 33 million in value, to be lent to several MFIs in the region at the end of this year.
The MFBA deal, however, brings securitization to a new level in microfinance. It marks the first issuing of bonds by a single MFI, rather than by a third party investment company issuing bonds on behalf of multiple MFIs. The deal demonstrates the potential for reputable MFIs to gain direct access to capital markets through bond sales and creation of investment vehicles similar to MFBA Bond I.
According to the MIX, the microfinance information clearinghouse, MFBA was founded in 2002. The MFI is owned by six shareholders: the European Bank of Reconstruction and Development (EBRD), the International Finance Corporation (IFC), the Black Sea Trade and Development Bank (BSTDB), KfW Development Bank, LFS Financial Systems GmbH, and AccessHolding. As of December 2006, MFBA’s gross loan portfolio totaled USD 47.3 million, with USD 55.4 million in total assets (see “Financial Data”). The Azeri MFI has 16,675 active borrowers, with average loan balances of USD 2,834, as well as 813 customers with savings accounts, the average account balance standing at USD 4,624 (see “Outreach & Impact”).
Additional Resources:
Trend Capital: “Azerbaijani Micro Finance Bank Issues Bonds.”
MicroCapital article, May 9, 2007: “Morgan Stanley and BlueOrchard Finance Launches USD 108mm Bond Backed by Microfinance Loans.”
MicroCapital article, June 29, 2007: “Permodalan Nasional Madani of Indonesia Issues USD 33 Million Worth of Bonds to Finance Microfinance Operations.”
MIX Market: “Profile for MFBA.”
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