MICROCAPITAL STORY: Review of the 2008 Global Microfinance Investment Congress in New York Sponsored by Standard Chartered Bank and Presented by PlaNet Finance

Taking place in New York from May 14 to 16, the Global Microfinance Investment Congress brought together delegates from microfinance institutions (MFIs), microfinance investment vehicles (MIVs), commercial banks, financial institutions, and government agencies. While the congress tackled microfinance investments and the industry’s future, this article will summarize a few themes addressed during the presentations and panels.

Given the current global markets, the subprime and credit crisis was clearly a popular topic. Most delegates felt that the credit crisis affected liquidity and investor interest rather than the default risk of the underlying loans. Some MIVs have seen a return of clients, who earlier had graduated to more general sources of lending. Also the lack of appetite for collateralized loan obligations (CLO) has extended to microfinance. However, other MIVs felt that the slowdown in the general markets had caused some investors to turn to niche markets such as microfinance for diversification.

Many delegates believed the subprime crisis and disappearance of the CLO market would help the microfinance industry from going though an early bubble. While MFI defaults have been few and far between, many also believed defaults were good for the industry as learning tools to prevent irresponsible growth and investment in the industry. Finally, in terms of loan portfolio credit quality, participants felt that natural disasters and climate changes posed significant risk.

Another common theme given the rapid growth of microfinance was the possibility of overinvestment and excess capital in microfinance. Several panelists cautioned against the excessive concentration of funds into a few MFIs rather than excessive cash flows overall. Thus there was also an emphasis on involving responsible, quality investors who understand each MFIs’ goals and do the appropriate due diligence.

Along with MFI portfolio growth, some delegates have seen an increase in average loan sizes without a new generation of MFIs serving the poorest of poor. In addition, the concentration of funds has also been geographically, with Asia and Africa seeing little foreign investment. Several MFIs emphasized that the most important factor into entering these markets is an enabling environment, particularly the political and regulatory situation. In China, MFI MicroCred Nanchong emphasized the importance of establishing political relationships as well as subsidies for operations such as technical assistance.

In the more mature markets such as Latin America, some panelists felt that consolidation of MFIs will become a trend. This could include an increase in merger and acquisition activity and be a feasible exit strategy for equity investors. Another exit strategy that could become more popular is initial public offerings (IPOs). According to Arnaud Ventura, VP of PlaNet Finance and CEO of MicroCred, 80 percent of investments have been in debt, and thus there is opportunity and need for increased equity financing.

Finally, another debate covered in the conference was the appropriateness of new products such as consumer loans. Several delegates cautioned against the mission drift of MFIs and offering of products which could easily lead to client over-indebtedness. However, some MFI delegates felt there was a need and demand for consumer loans, which could benefit clients when administered responsibly.

The conference was sponsored by Standard Chartered Bank and present by PlaNet Finance and the American Conference Institute. Further details on conference logistics and hosting participants can be found in the following MicroCapital article.

by Jennifer Lee

Additional Resources:

Global Microfinance Investment Congress: Home, Brochure, MicroCapital Coverage

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