MICROFINANCE PUBLICATION ROUND-UP: Lessons on IPOs from Indian MFIs; Growth In Impact Investing; 10-Year Survey of Microfinance Investment Vehicles

“How to IPO Successfully and Responsibly: Lessons From Indian Financial Inclusion Institutions”; by Anna Kanze; published by the Center for Financial Inclusion (CFI) at Accion; Fall 2016; 25 pages; available at: http://www.centerforfinancialinclusion.org/storage/documents/How_to_IPO_Final.pdf

This report draws upon two recent initial public offerings (IPOs) in the financial inclusion industry – those of Equitas and Ujjivan, both microfinance lenders in India – to make the case that institutions can use IPOs to strengthen their capital base while remaining committed to their social missions. Ms. Kanze states that financial institutions catering to poor clients can face difficulties when going public because public companies are “answerable to a large, diverse and fluid group of shareholders who may not share or even be aware of the company’s founding social mission.” These shareholders have the potential to steer the firm’s focus away from financial inclusion towards “excessive” profit maximization. According to the author, an institution can mitigate this challenge by “hardwiring” its financial inclusion mission into the firm’s governance structure and operations. For example, the organization can define concrete social targets and embed social objectives into offering documents and shareholder agreements.

Equitas has capped its target return on equity (ROE) at 25 percent to “ensure that the clients benefit from increased efficiencies.” The company dedicates 5 percent of its annual profit to social programs intended to provide health care, housing, food security and education to its clients and “ultra poor” non-customers in communities where Equitas works. Ujjivan instituted a Corporate Social Responsibility Committee with the goal of ensuring that scaling the company did not take away from the organization’s social mission.

In summary, Ms. Kanze argues that financial inclusion institutions can conduct “responsible” IPOs if they “make clear that their purpose is to create social value, and that a successful commercial model is a means to that end.”

“Impact Investing Trends: Evidence of a Growing Industry”; published by the Global Impact Investing Network (GIIN); December 2016; 40 pages; available at: https://thegiin.org/assets/GIIN_Impact%20InvestingTrends%20Report.pdf

In this report, GIIN draws upon quantitative survey data gathered during 2013 through 2015 from 62 “impact” investors, which GIIN defines as those making “investments…into companies, organizations and funds with the intention to generate measurable social and environmental impact alongside a financial return.” The authors also gathered qualitative data via interviews with five such investors regarding market trends and developments. The findings include:

  1. Respondents’ collective assets under management (AUM) grew at a compound annual rate of 18 percent, from USD 25.4 billion to USD 35.5 billion;
  2. 98 percent of respondents reported that their organization’s “impact” performance was either in line with or exceeding targets, and 85 percent to 95 percent indicated that financial performance was either in-line with or exceeding targets; and
  3. Respondents reported an increasing number of investees with “successful track records” and greater “government support” for the market.

The most commonly cited challenges were “lack of appropriate capital across the risk/return spectrum” and a “shortage of high-quality investment opportunities with track record”.

“Microfinance Funds – 10 Years of Research and Practice”; published by CGAP (The Consultative Group to Assist the Poor) and Symbiotics Group; December 2016; 76 pages; available at: http://symbioticsgroup.com/wp-content/uploads/2016/12/Symbiotics_10yMIV_whitepaper2.pdf

This report analyzes ten years of research on microfinance investment vehicles (MIVs) based on data captured through annual CGAP and Symbiotics surveys. The findings of the study, which drew upon data from 2006 through 2015, include that:

  1. Over this time period, the sum of direct investments to microfinance providers grew faster in South Asia than in any other region, with a compound annual growth rate of 47 percent and a 15 percent share of the global total in 2015;
  2. Capital from institutional investors increased in volume from USD 500 million in 2006 to USD 5 billion in 2015, representing 47 percent of total funding to MIVs as of 2015; and
  3. MIVs registered in Western Europe account for approximately 90 percent of global MIV assets.

By Michelle Dold, Research Associate

Sources and Additional Information:

[1] CFI: “How to IPO Successfully and Responsibly: Lessons From Indian Financial Inclusion Institutions”, http://www.centerforfinancialinclusion.org/storage/documents/How_to_IPO_Final.pdf

[2] GIIN: “Impact Investing Trends: Evidence of a Growing Industry”, https://thegiin.org/assets/GIIN_Impact%20InvestingTrends%20Report.pdf

[3] Symbiotics, CGAP: “Microfinance Funds – 10 Years of Research and Practice”, http://symbioticsgroup.com/wp-content/uploads/2016/12/Symbiotics_10yMIV_whitepaper2.pdf

[4] MicroCapital Universe Profile: Center for Financial Inclusion at Accion (CFI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Center+for+Financial+Inclusion+%28CFI%29

[5] MicroCapital Universe Profile: Grassroots Capital, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grassroots+Capital

[6] MicroCapital Universe Profile: Equitas Holdings Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Equitas+Holdings+Private+Limited

[7] MicroCapital Universe Profile: Ujjivan Financial Services, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ujjivan+Financial+Services

[8] MicroCapital Universe Profile: Global Impact Investing Network (GIIN), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Global+Impact+Investing+Network+%28GIIN%29

[9] MicroCapital Universe Profile: CGAP (Consultative Group to Assist the Poor), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29

[10] MicroCapital Universe Profile: Symbiotics Group, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Symbiotics+Group

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/.

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