On Friday, November 16 at European Microfinance Week, a conference hosted by the Luxembourg-based European Microfinance Platform (e-MFP), Sebastian von Stauffenberg, the CEO of US-based microfinance rating agency MicroRate, said of the larger investment community, “People outside of our microfinance bubble speak another language – if we don’t speak their language, the whole trickle-down effect [of increased investment in microfinance] does not occur.” Mr von Stauffenberg was speaking as part of a panel on microfinance investment that also included Sebastien Juhen of Swiss microfinance investor BlueOrchard Finance, who said that microfinance investment vehicles (MIVs) should work to improve their communication to investors regarding the risks of investing in microfinance including how investment managers address these risks.
Joerg-Peter Hayn of the Banque de Luxembourg, a private bank reporting EUR 30 billion (USD 38 billion) in net assets, said his institution offers microfinance investments because they offer good long-term returns, diversity and safety in a world in which assets that were once considered safe – such as sovereign bonds issued by Greece – are now much more risky. Mr Hayn said that Banque de Luxembourg usually invests in microfinance through three-year loans with hedging on any local-currency risk. It avoids areas with frequent crop failure, political issues such as exist in Nicaragua or reputation issues such are found in India. Mr Hayn cited returns of around 4 percent per year after fees at or near 2 percent. Over the next few years, Mr Hayn expects local financing to crowd his firm out of Latin America.
Axelle Ferey, who works in private equity at the Luxembourg arm of UK-based accounting and advisory services firm Ernst & Young, discussed the recent EU Alternative Investment Fund Managers (AIFM) directive, which will require “alternative” funds that manage EUR 500 million (USD 650 million) or more in unleveraged assets (or EUR 100 million (USD 130 million) or more in leveraged assets) to meet a range of standards intended to protect investors, increase transparency and avoid systemic risk. The standards, which apply throughout the EU and in three other countries, cover compensation, conduct, disclosure, organizational and other guidelines. The “carrot” is that fund managers can acquire a “marketing passport” that is valid in all participating countries through a single process beginning in July 2013. Ms Ferey also told MicroCapital that, “For small managers below the thresholds, the European Commission is currently designing a new EuSEF [European Social Entrepreneurship Fund] label, the purpose of which is to establish a passporting regime for EU-based funds and their managers, on a voluntary basis, provided a number of criteria are met by the managers in relation to its organization and investment policy.”
Mr von Stauffenberg went on to discuss his firm’s Luminis investor service and MicroRate’s 2012 MIV survey, which offers data from MIVs reporting USD 7 billion assets as of 2011. Among the trends he cited are that microfinance funds are starting to close in appreciable numbers. From 2006 to 2010, three closes were recorded as compared with six in 2011 alone. The MIV survey indicates that returns are stable, with “very few” funds reporting negative returns and most performing in the range of 2.5 percent to 4.5 percent per year. Mr von Stauffenberg echoed Mr Hayn in citing the low correlation of microfinance investments with other asset classes. Looking to the future, Mr von Stauffenberg suggested that MIVs should improve at demonstrating that they meeting the non-financial goals that they advertise, whether that be serving women, helping people move out of poverty or others.
This content is sponsored by e-MFP, the organizers of European Microfinance Week. It is one in a series of articles covering the proceedings of the event, which took place in Luxembourg from November 14 to November 16. MicroCapital was reporting onsite throughout this time.
November 16, 2012, “SPECIAL REPORT: Responsible Microfinance Implementation Action Group Looks to Boost Usage of Existing Tools, Distributes Template of Covenants for Investors to Attach to Loans to Microbanks,” http://www.microcapital.org/special-report-responsible-microfinance-implementation-action-group-looks-to-boost-usage-of-existing-tools-distributes-template-of-covenants-for-investors-to-attach-to-loans-to-microbanks/
November 16, 2012, “SPECIAL REPORT: Alalay Sa Kaunlaran Incorporated (ASKI) of the Philippines Takes $127k European Microfinance Award for Innovation in Food Security,” http://www.microcapital.org/special-report-alalay-sa-kaunlaran-incorporated-aski-of-the-philipppines-takes-127k-european-microfinance-award-for-innovation-in-food-security/
October 30, 2012, “MICROFINANCE PUBLICATION ROUND-UP: Analysis of Microfinance Investment Vehicles; Female Microfinance Clients in Pakistan; Life Microinsurance in the Philippines,” http://www.microcapital.org/microfinance-publication-round-up-analysis-of-microfinance-investment-vehicles-female-microfinance-clients-in-pakistan-life-microinsurance-in-the-philippines/
September 22, 2012, “MICROFINANCE EVENT: European Microfinance Platform’s Microfinance Week, Luxembourg, November 14-16, 2012, Onsite Reporting to be Provided by MicroCapital,” http://www.microcapital.org/microfinance-event-european-microfinance-platforms-microfinance-week-luxembourg-november-14-16-2012-onsite-reporting-to-be-provided-by-microcapital/
MicroCapital Universe Profile: BlueOrchard: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=BlueOrchard
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