On March 10-11, 2008, ACCION International and Credit Suisse held the third Cracking the Capital Markets conference on microfinance investment. The conference brought together hedge fund managers, institutional and private investors, leading rating agencies, and microfinance institutions (MFIs) to discuss the challenges, successes, and future of microfinance investments. The first, second, and third articles of this series can also be found on the MicroCapital website.
In addition to innovative securities transactions, the conference also introduced new investment opportunities which extend beyond the classic micro-credit sectors. This includes investment to small and medium enterprises (SMEs), insurance services to low-income people, housing funds for the very poor, and green energy investments. Presentations from this panel can be found here.
The first investment opportunity was the Oasis Fund by Bamboo Finance. The Oasis Fund covers sectors such as health, education, energy, shelter, agriculture, water, and sanitation. Founder Jean-Philippe de Schrevel emphasized that “capital markets must be tapped at scale and directed to commercial investments which fuel market-based approaches to solving the world’s most critical social and environmental problems.” Through the fund, Mr. Schrevel wants to demonstrate that social entrepreneurs can be profitable. However, private investors- and not charities- will have to take the risk as they did years ago with microfinance and invest in these opportunities with little history or proof of prior success.
Mr. Schrevel is also the founder of for-profit microfinance investment firm Blue Orchard Finance. For more information on Blue Orchard Finance, please see the following MicroCapital “Who’s Who in Microfinance” article on the company.
Venture capitalism for SMEs was discussed by by Klaus Tischhauser, CEO of responsAbility Social Investment Services. The firm has USD 472 million in total assets, USD 31 million of which is in the SME equity finance fund, responsAbility BOP Investments. The firm sees SMEs as an important market because they are important for job creation and have little access to risk capital. In addition, the professional private equity approach will provide due diligence, professional valuation, structuring, and intensive governance. Description of responsAbility’s microfinance-focused investments can be found on MicroCapital.org.
Root Capital discussed the opportunities in providing financial services to community-based, rural, grassroots businesses. Coops and rural natural producers are often too big to receive MFI funding but are still too small to be covered by conventional banks. Targeted sectors include agro-forestry, wild-harvest products, certified wood, sustainable fisheries, and ecotourism, as human poverty is linked with environmental degradation. The firm also provides financial education training, noting the inability to separate capital restrictions from capacity ones. The firm has USD 20 million of assets under management and provides loans from USD 25,000 to USD 1 million in Latin America, Africa, South Asia, and Southeast Asia
Finally, the Acumen Fund is a non-profit global venture fund concentrating on private sector development of health, water, housing, and energy. Similar to Root Capital, Acumen Fund sees the benefit of negotiating like a private equity firm but without the single-minded goal of profits. Thus, capital markets have a role to play, but it must be targeted at investors with double-line return goals. To that end, the Acumen Fund is trying to create a global metric system to define and measure social returns. Mr. Kundra also mentioned that this type of investment is really a local game and successful funds must have teams in the field. Click here for the MicroCapital story on Google’s investment in the Acumen Fund.
Several panelists really stressed the importance of appropriate investors and understanding the investment risks. Private investors and high net worth individuals with socially-responsible goals and higher risk tolerances are currently their target audience. In other words, investors need to be “patient” capital, who is willing to take the first risk with the significant possibility of below market returns.
ACCION is a private, non-profit microfinance organization, specializing in global micro-enterprise loans, business training, and other financial services. Credit-Suisse Group is a global financial service company, headquartered in Zurich. Credit-Suisse’s participation in microfinance can be found on the company’s website.
by Jennifer Lee
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