In 2012, Incofin’s Rural Impulse Fund II (RIF II) bought a 25-percent stake in AMK, a microfinance institution in Cambodia. Six years later, RIF II exited AMK, selling its stake to Shanghai Commercial and Savings Bank (SCSB). Dina Pons, Incofin’s regional director for East Asia, shares some insights on the exit 
process.
IN PHOTO: The last and first meeting of AMK’s board of directors: entering and exiting members ensuring a smooth transition.
MicroCapital: Please tell us a bit about AMK’s social performance and Incofin’s contribution to it.
Dina Pons: Founded in 2003, AMK is one of the largest and most recognised finance institutions operating in rural Cambodia. It serves around 700,000 clients nationwide with a unique set of financial services, including credit, savings, money transfers and insurance. AMK’s strong customer centricity and deep focus on rural clients were among the key attractions for us to invest in the company. Since its inception, AMK’s mission has been “to help large numbers of poor people improve their livelihood options through the delivery of appropriate and viable microfinance services.” Far from being just a theoretical motto, AMK’s social mission is what drives the institution and its staff to perform. For instance, a board-level social performance committee, which I was privileged to chair for three years, was tasked with checking each year whether financial results had been generated whilst respecting AMK’s core social mission. AMK is also certified by the Smart Campaign and holds an “A” rating for social performance from M-Cril.
MC: A year ago, RIF II and other AMK shareholders started looking for a buyer; how did this search begin?
DP: When we and the other shareholders – Agora (which sought only a partial exit), the Cambodia-Laos Development Fund and PROPARCO – started planning our exit, we decided to implement a formal screening process that we called a “Fitness and Compatibility Review.” The concept was simple: each interested buyer would be screened against a list of financial and non-financial criteria to assess its compatibility with AMK’s corporate culture, its understanding of AMK’s core social mission, and its commitment to respect and maintain that mission in the future.
The two people leading the Fitness and Compatibility Review were AMK’s pre-eminent independent board member and ex-CEO Pete Power as well as myself, the Chair of the Social Performance Committee. These were busy times, gathering potential buyers’ annual reports, audited financial statements, rating reports, etc. We also conducted interviews with potential buyers’ auditors and credit raters to learn about their risk appetite and overall approach to transparency. We spoke with their overseas branch managers to assess their corporate culture and management style. We also spoke with the people who would take seats on the AMK board to assess their fit with the AMK team as well as their understanding of financial inclusion in general and the Cambodian microfinance market in particular. We then evaluated the information we gathered using a list of 18 criteria that we hope can help inspire future responsible exits in the impact investment industry.
MC: How did this matrix of criteria lead the exiting shareholders to choose SCSB?
DP: We felt this process really tested our own intent to exit AMK responsibly, against the realities of timing constraints and return expectations that are inherent in any exit process. By forcing ourselves to give SCSB a grade against each of the criteria, we engaged in meaningful conversations with shareholders on topics such as the level of SCSB’s commitment to the poor clients that AMK serves. One result of these conversations was that SCSB agreed to include a clause in the shareholder agreement whereby any change to AMK’s social mission or target client group would require the positive vote of Agora, the company’s original promoter-shareholder. A similar clause was written to protect AMK’s Cambodian managers. The process also helped us gain confidence that other aspects of SCSB are well aligned with AMK’s vision, including: (1) SCSB’s history as a retail bank serving MSMEs in its home markets for more than a hundred years; (2) its strategy of sharing its banking expertise in multiple emerging economies in Southeast Asia; (3) its long-term investment horizon; and (4) its commitment to boosting economic development in Cambodia.
Fitness and Compatibility Review 
Matrix
Reputation
1. Know-your-customer and anti-money-laundering checks show no reputation issues
2. Public information (including traditional press and internet sources) shows no reputation issues that the candidate cannot legitimately explain
3. The central bank is positive about the candidate
Financial Inclusion and Regional Knowledge
4. Previous exposure to microfinance and understanding of microfinance models
5. Understanding of the Cambodian microfinance market
Financial Performance
6. Strong financial performance, including an “A” credit rating, of the candidate and its affiliates
7. Capacity to provide emergency funding to affiliates
8. Capacity to provide low-cost funding to affiliates
Social Performance
9. Responsible pricing (including both interest rates and fees)
10. Responsible return expectations and long-term investment horizon
Strategy and Vision
11. Commitment to the mass market
12. Commitment to the company’s overall mission
13. Candidate’s future strategy is in line with the company’s social mission
Corporate Culture
14. Flexibility of organisational and reporting structures
15. Compatibility of candidate’s organisational culture
16. Clear plans for the company’s management team
17. Agreement to maintain the employee stock-ownership plan for management and staff
Additionality
18. Knowledge and access to resources relating to MSME lending, non-credit retail products, mobile banking, risk management, etc
This feature is sponsored by Belgium-based Incofin Investment Management.
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