Notes from ‘Private Equity in Microfinance’ on Tuesday November 17, 2009
Sponsored by Morgan Stanley and the Microfinance Club of New York


Panel Members:

Gregory F. Casagrande – South Pacific Business Development Microfinance Network
Howard J. Finkelstein, Esq. – Board of Directors – Microfinance Club of NY
Didier Lamarche – Adam Smith Capital Partners
John Schroeder – Frontier Investments Fund - Accion
Luca Torre – Treetops Capital
Bryan T. Wagner – Morgan Stanley

Investibility of microfinance
- institutions have improved ratings / grades as a result of improved infrastructure, management
- increases in growth / capital

MFI investment vehicles
- increases in numbers, increases in competition
- increases in demand for equity vs. fixed income
o better pay outs (2/20 vs. 2% in traditional bond funds)
- increases in risk appetite

Recent developments / movements to establish common metrics across microfinance have led to improved analytics, and subsequently increased investibility.
- companies beginning to rate MFIs


Thoughts on the Return Profile of an MFI / PE Investment
Ideal Expectations
- Growth MFIs : 20-40% returns
- Mature MFIs : 12% returns

Required due diligence when Investing in MFI
- Strong management team essential
- Existence / efficiency of underlying operations
- Potential country risks
- Ask about 3-5 year plan
- Key Metrics : ROA approx 4%, D:E approx 4:1, ROE approx 20%
- Understanding of exit strategy (IPOs unlikely)

Country risk
- Regulations
- Enforceability of contracts
- Currency stability
- Civic stability

Type of Investors for MFIs (Target market)
How critical are social returns?
- totally financial investors
- socially responsible investors
- totally social investors

Concluding Remarks
- Most panel members bullish on industry; ‘potentially ‘tenfold’
- Different, new investors coming into field
- Necessary to keep microfinance at heart of model
- Need US institutional investors to come in to the investing space; US institutions need to accept larger tickets
- Need to improve accounting, structure, technology to attract more investors
o Examples of technology include correspondent banking, payment systems on mobile phones

Question & Answer
- Additional securitization of microfinance loans – DB just did deal
- Potential ‘bankable’ population of world’s poor – approx 500M families
- Underutilized microfinance markets: China / Vietnam have room for development, however issue is government regulation / control
- Importance of loan guarantees to potential investors – local currency financing, get investors over hurdles