By Xavier Reille and Jasmina Glisovic-Mezieres, CGAP, with research assistance from Yannis Berthouzoz, Symbiotics, published by Consultative Group to Assist the Poor (CGAP), April 2009, CGAP Brief, 4 pages, available at:
http://www.cgap.org/gm/document-1.9.34437/CGAP%20Brief_MIV_FinancialCrisis.pdf
According to recent CGAP research report, microfinance funds have not been severely impacted by the global financial crisis. The report acknowledges that while emerging market funds have experienced a 20 percent sell-off, microfinance investment funds (MIVs) experienced positive returns in 2008. In fact, assets in the top 10 microfinance investment funds grew by 32 percent in 2008. The report is based on UBS Investment Research regarding economic comment on the state of the emerging markets, CGAP and Symbiotic’s (a microfinance investment advisor) research on the top 10 microfinance investment vehicles (MIVs), and the historical performance of euro-denominated funds as obtained from the Symbiotics Microfinance Index EUR.
As of December 2008, there were 104 active microfinance funds with total assets under management of USD 6.5 billion. CGAP notes that the industry is very concentrated (private equity funds, holding of microfinance banks, fixed income funds, structure finance vehicles and a broad range of institutions) with the top 10 funds holding about 60 percent of the asset base.
The International Finance Corporation (IFC), a member of the World Bank Group, as well as other Development investors are presently active in the microfinance community and have been strengthening their portfolios in response to the credit crisis. Retail investors have also contributed to the growth of microfinance funds in 2008. For example, a retail-oriented fund, the responsAbility Global Microfinance Fund has increased by 17 percent since September 2008 and 96 percent for the year.
Top 10 microfinance investment vehicle (MIVs), assets under management (AUM) as of December 2008
- ProCredit Holding AG: 2008 AUM (USD 1.019 billion) 2007 AUM (USD 800 million)
- European Fund for Southeast Europe: 2008 AUM (USD 745 million) 2007 AUM (USD 587 million)
- Oikocredit: 2008 AUM (USD 632 million) 2007 AUM (USD 569 million)
- Dexia Microcredit Fund: 2008 AUM (USD 429 million) 2007 AUM (USD 298 million)
- responsAbility Global Microfinance Fund: 2008 AUM (USD 378 million) 2007 AUM (USD 193 million)
- SNS Institutional Microfinance Fund: 2008 AUM (USD 243 million) 2007 AUM (USD 117 million)
- responsAbility SICAV (Lux) Microfinance Leaders Fund: 2008 AUM (USD 201 million) 2007 AUM (USD 160 million)
- ASN-Novib Fund: 2008 AUM (USD 122 million) 2007 AUM (USD 120 million)
- Dual Return Fund, Vision Microfinance Subfund: 2008 AUM (USD 116 million) 2007 AUM (USD 55 million)
- Omidyar/Tufts Fund: 2008 AUM (USD 114 million) 2007 AUM (USD 116 million) *(Note: All the above are European funds with the exception of the Omidyar Tufts Fund)
Average fixed-income funds reached 5.5 percent returns for 2008. There were three factors contributing to the positive performance of fixed-income funds in 2008:
1) Increase in credit risk premium for Microfinance funds (200-400 basis points) since summer 2008. Interestingly enough, Symbiotics reported that the average credit premium for the portfolio that is advises is roughly 700 basis points.
2) Majority of the fixed-income funds invested in hard currency that were not impacted by currency risk.
3) Liquidity constraints have been the source of concern and not credit risk for microfinance loan portfolios.
CGAP projections for 2009
CGAP concludes that they foresee that the average net return for fixed-income funds (denominated in euros) will be below 3.5 percent for 2009. They do not foresee major redemptions from institutional investors because “of their long-term time horizon and double bottom line perspective.” Microfinance institutions (MFIs) are building loan loss provisions to anticipate the potential rise in MFI credit risk while asset managers are increasing their cash levels to maintain liquidity and counter and manage any potential redemptions.
By Zoran Stanisljevic
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