MEET THE BOSS: Jean-Pierre Klumpp of BlueOrchard Finance

Jean-Pierre Klumpp has been Chief Executive Officer of BlueOrchard Finance since 2008.

MicroCapital: Would you please tell us about the history of BlueOrchard?

JPK: The Dexia Micro-Credit Fund (DMCF), which we manage, was launched in 1998 by Dexia Asset Management. Jean-Philippe de Schrevel, at the time a financial analyst fully dedicated to this fund, founded BlueOrchard Finance in 2001 with two partners and took over the management of the microfinance portfolio for the DMCF. With just a little more than USD 10 million under management at the beginning, BlueOrchard started an impressive ascent to about USD 1 billion assets and eight microfinance investment vehicles under management today.

Gradually, the company went through some changes like many successful startups. Jack Lowe, an experienced businessman and financier, was appointed as CEO and brought BlueOrchard even closer to the capital markets. That’s when our three renowned securitizations were set up – firsts in the microfinance sector. Beyond the continued success of the DMCF, this innovation really gave BlueOrchard a greater magnitude.

In 2007, we entered a third chapter, with the introduction of our Private Equity Fund, which we manage alongside several debt and structured products. An important mark of BlueOrchard’s identity is being a multi-product microfinance asset manager.

MC: What is the current scale of BlueOrchard’s work?

JPK: BlueOrchard Finance presently has over USD 830 million total assets under management. The Private Equity Fund managed by BlueOrchard Investments can currently count on USD 131 million. We work with around 140 partner microfinance institutions (MFIs) in about 40 countries worldwide.

MC: Please describe BlueOrchard’s products and funds.

JPK: The Dexia Micro-Credit Fund is the largest fund, with USD 477 million in assets under management as of May 2009. The fund currently covers over 30 countries and nearly 100 MFIs and has disbursed more than 600 loans since inception. About 15 percent of its loans are made in local currencies. We estimate that over 400,000 clients are reached by funding provided by the DMCF.

The Saint-Honoré Microfinance Fund was designed for the Rothschild Bank. Assets under management currently amount to EUR 10 million.

The BBVA Codespa Microfinance Fund is a regional fund focused on Latin America with some of the funding performed in local currencies. BlueOrchard is advisor for the microfinance portfolio. The fund recently received a substantial subscription from CAF (Andean Development Corporation), a regional development bank, and we are in the process of deploying these funds. Assets under management amount to EUR 28 million.

Our collateralized debt obligations (CDOs) are closed-end structured finance products. We launched three CDOs between 2004 and 2007 for a total of USD 277 million. BOLD 2 won the Financial Times and IFC “Sustainable Deal of the Year” award in 2008.

The Microfinance Enhancement Facility (MEF) was launched early this year by the IFC and KfW in order to provide funding to qualifying MFIs in a crisis environment. BlueOrchard was chosen as one of three fund mangers that will help the two institutions in deploying these funds.

MC: What is BlueOrchard’s investment philosophy?

JPK: We invest – through MFIs – in the income-generating activities of microentrepreneurs and in the provision of financial services to those previously excluded from the financial system. We are convinced of the merits of a for-profit approach to complement other approaches targeting the base of the pyramid. Just as their end-borrowers have to become autonomous through the profit they gain from the funded activity, so the MFI should also become profitable and show decent financial indicators, in order to access more and cheaper funding and be able to grow. Investors should obtain both a financial and a social return for their investments. And we as a company should also be profitable, so as to continue to be able to offer interesting and innovative investment products, while safekeeping the social impact that is associated with the work we do.

MC: What can you tell us about your returns to investors and your price of capital to MFIs?

JPK: The borrowing rate to MFIs is composed of a base rate (often US LIBOR at 6 months) and a margin of several points that varies depending on the risk profile of the institution and on the market situation. Investors receive the collected interests less the expenses for the management of the fund. Last year the US dollar share of the DMCF provided a return of 5.3 percent. In absolute terms, these are quite attractive returns. In relative terms, these returns were well above those of many other investment schemes in the – admittedly unusual – context of 2008.

MC: Do you have any opinions on the current economic environment?

JPK: The direct and indirect impacts of the crisis on microfinance are a central issue for all actors involved in the sector. The potentially critical dimensions have been identified, such as currency related-risks, the loss of remittances, etc. While the impacts are real and sometimes severe, we believe that the sector overall is weathering this period quite well, considering the magnitude of the financial and economic crisis worldwide. Through our close contacts with partner MFIs and the monthly data we collect, we see some slight signs of deterioration here and there, but overall the MFIs are intelligently steering through these very turbulent times. On the other hand, the investors remained true to their long-term commitments towards microfinance, even during the stressful last months of 2008.

MC: What trends in the industry do you foresee?

JPK: The momentary, forced slowdown in most microfinance markets will allow the industry to tackle some negative side effects of its hyper-growth in recent years, like over-indebtedness, mission-drift, etc. Social impact measurement will also be progressively implemented, as it will be required by all public and private contributors. Beyond the crisis, a strengthened and more-capable microfinance industry will be able to grow again, as the demand remains vast.

Sustainable and socially responsible investments are gaining momentum in the current crisis context. Microfinance can be an integral part of these new schemes. If governments would gradually request their own investments to be done in a sustainable and socially responsible way, this could even open larger pools.

MC: What drives you personally?

JPK: I like to imagine that by 2050 a Nobel Prize winner for groundbreaking research in energy production might be the grandson of a micro-entrepreneur in what used to be called a developing country.

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