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Measuring the impact of investments remains a main challenge for sustainable finance professionals and, together with Climate Change, an overarching theme at TBLI. Sixteen related workshops offer debate on ESG and Impact Investing trends, private equity, portfolio strategy, food production, emerging markets, sustainable energy or philanthropy investing.
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Microfinance investments –strategies for triple-bottom-line performance
Sébastien Juhen, CIIA14 November 2013
Table of contents
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Defining a triple-bottom-line strategy
Measuring the results: triple-bottom-line performance
Microfinance investments: overview
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Microfinance investments: growth across sub-asset classes
Investors in the microfinance asset class include international financial institutions (e.g. development banks like KfW, IFC), donor governments (e.g. Swiss Development Corporation, EU, BMZ), microfinance investment funds or vehicles (MIVs) as well as commercial investors:
– “Impact first” investors who aim to maximize social & environmental impact instead of financial returns
– “Finance first” investors who seek investment vehicles that offer risk-adjusted market returns while also generating social & environmental impact Sources: Microrate, The State of Microfinance Investments 2013 ; 2013
Symbiotics MIV Survey
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1.8 1.7 1.8 2.2
3.4 3.74.2
5.4
0.80.9
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2009 2010 2011 2012
Microfinance Investment Vehicles (MIVs) -Growth in assets (USD bn)
Non-MF Assets MF Debt MF Equity
Strategy definition: the microfinance investment toolbox
Financial
Social
Environmental
- Debt, Equity, Hybrid- Pure Microfinance vs SME,
Fair Trade, etc.- Local, Hard Currency- FX hedging
- Mission statement- Target population- Range of services- Job creation- Focus on underserved areas
- Mission statement- Range of services
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From strategy to performance: defining the indicators
Financial
Social
Environmental
- Debt, Equity, Hybrid- Pure Microfinance vs SME,
Fair Trade, etc.- Local, Hard Currency- FX hedging
- Mission statement- Target population- Range of services- Job creation- Focus on underserved areas
- Mission statement- Range of services
- Financial target return p.a.- Risk parameters- Appropriate benchmark(s)
- Female vs male borrowers- % of extreme poor- Extra-financial services- # of MFI employees- Rural vs urban borrowers
- Extra-financial services- % of «green» loans
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Country and MFI diversification criteria
Portfolio riskanalysis
Investmentapproval
Creditapproval
Due Diligence(Financial,
Social, Environmental)
Identification of potential investees
From strategy to performance: the investment process
Bottom-upCredit Process
Top-downPortfolio Construction
Process
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Risk Pricing
Loan pricing in line with the financialand social rating of eachmicrofinance instititution
Social & EnvironmentalRating: SPIRITSocial Performance & Impact Reportingand Intelligence Tool
From strategy to performance: the analytical tools
Financial Rating: BOSCO BlueOrchard Credit Scoring and Rating System
BOSCO for AB MFB Weight Aug-13I. CORPORATE GOVERNANCE 12% 5.4II. STRATEGY 6% 3.0III. RISK POSITIONING 65% 44.2IV. CAPITAL ADEQUACY 12% 10.8V. FINANCIAL PERFORMANCE 5% 2.0VI. SIZE ADJUSTMENT 0% -4.4
Overall Score 100% 61.0
Credit Rating for AB MFB Rating
Rating Date Aug-13
Sovereign Country Rating Nigeria BB-Last Country Rating approval date Nov-12
Notch Adjustment DOWN from BOSCO Score 3
Suggested Stand Alone Credit Rating B-
Notch Adjustment UP for External Support 1
Suggested Credit Rating B
Problem Credit Designation Not Problem Credit
Full Parent Guarantee No
Parent Rating
Assigned Credit Rating B
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Measuring performance: investor reporting is key
Financial
100.0
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Dec-
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SMX MIV Debt USD BOMF Class I USD LIBOR 6M
Example: BlueOrchard Microfinance Fund, Class I Shares in USD, as of 30 Sep 2013
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Measuring performance: investor reporting is key
Social
Example: BlueOrchard Microfinance Fund, as of 30 Sep 2013
Based in León, Nicaragua, Pro Mujer Nicaragua had a loan portfolio of USD 16 million as of August 2013,serving more than 55,000 clients (97% of whom are women) with an average loan size of USD 286. In addition to itscredit products, Pro Mujer Nicaragua offers medical services through clinics staffed with a physician and a nurse in allbranches. All clients have access to basic health tests, such as blood pressure measuring, diabetes test, andmeasurement of body mass index (BMI). With the cooperation of the Linked Foundation, Global Partnerships, and PATH,the MFI designed an optional health package for its clients – called “Vida Sana” – that can be acquired for an annual feeof USD 43. The health package’s goal is the early detection of common and preventable illnesses and is currently offeredin three departments andthe MFI has set itself the challenge to expand such initiative to all seven departments of thecountry where it has branches. The MFI also has alliances with specialist physicians and laboratories so clients that needmore specialized services can obtain sizable discounts.Moody’s Analytics completed a social performance assessment (SPA) of Pro Mujer in Nicaragua in October 2013 andassigned the MFI an SPA grade of SP2, the second-highest grade possible.
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Measuring performance: investor reporting is key
Environmental
SenegalMicrocred Senegal is in the pilot phase of its CleanTech project. The new credit product enables to lease solar energy products (batteries, lamps, radios, solar refrigerators): The borrower becomes owner only after the credit is reimbursed. The first phase is being launched in three branches and will be extended throughout the network in 2014.
CambodiaAmret offers loans to client to purchase Bio-digesters and currently reaches nearly 1,000 clients with this product, for a total outstanding amount of nearly USD 300K.
Bosnia/ HerzegovinaPartner participates in the country’s “Solar energy as the future of sustainable development” project, and offers financing to start the production of solar collectors, efficient heating systems and other renewal energy products. As of June 2013, 20 Bosnian manufacturers have started the production of solar collectors as part of this project.
MongoliaXacBank has established an EcoBanking Department which provides financing for energy efficient stoves distributed by the government and NGOs under the Millennium Challenge program to reduce smog levels. This has also allowed XacBank to accumulate and sell carbon credits to Citibank via the Clean Development Mechanism market.
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Sébastien JuhenHead of Portfolio Management
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Your contacts
BlueOrchard Finance S.A.
32, Rue de Malatrex1201 GenevaSwitzerlandT +41 22 596 47 77
Feldeggstrasse 128008 ZurichSwitzerlandTel: +41 44 388 12 22
Remo OswaldDirector Business Development
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