Microfinance Investment Workshop 2006
Frankfurt, Germany , December, 12 2006 -
Reducing Barriers for Investment in Microfinance -
The Role of Structured Finance, Rating and Benchmarking
Forging new connections for continued innovation in generating more private investment in microfinance was the aim of the workshop. Private and public microfinance investors, mainstream rating agencies and microfinance raters, fund managers, and fund and structured finance experts took part in the event, which was organised and hosted by KfW Entwicklungsbank (KfW development bank) on 21-22 September 2006 in Frankfurt. Their working level and strategic discussions of experience, current approaches and methodological issues probed potential changes and adjustments aimed at overcoming bottlenecks in microfinance investment, especially for private investors.
Examples of microfinance securitisations and microfinance investment funds sparked discussions of current ways of tackling common barriers, for instance by transferring risks. Challenges and opportunities through rating and benchmarking provided the focus for further discussions.
The packed agenda covering two half days featured short presentations or statements by panellists and allowed space for panel discussions as well as actively engaging the participants as the 'extended panel'. In bringing together hard-nosed investors and mainstream rating agencies with microfinance investors and raters, the role - and limitations - of public and private investors, of structured finance and of ratings was the focus of their attention.
Demand for foreign investment in microfinance is growing rapidly - whereby the quality of the capital is increasingly important with local currency financing in particularly high demand followed by long-term equity investment. Public investors alone cannot meet this demand. Bringing private investors into microfinance hinges on structuring risks and improving transparency and information.
Structured finance, such as microfinance securitisations, transfers risks and is a new pillar of financing for the (as yet) small pool of high performing MFIs - some 80 MFIs worldwide. Although still a new generation instrument for microfinance, such transactions will grow in importance for this market as MFIs mature - thus lowering the need of leading MFIs to tap other types of financing which are accessible to a broader segment of MFIs.
Ratings and benchmarking in microfinance is bound to evolve from the current nascent stage and become more professionalised. Drawing on specialist microfinance ratings to assess underlying assets is a conceivable approach but further work is needed in this area.
Public investors are usually the first movers and invest where no private investors are able or ready to do so. They also contribute to laying foundations, such as in strong governance, and form a core of like-minded investors preventing mission drift, which are prerequisites for private investors to join. As they are, however, fairly cumbersome partners with many requirements, private investors could readily overtake them. An opportunity and useful role for public investors is to strategically fill gaps ('the holes in the cheese') with their range of instruments and thereby bridge private investors into the market.
- Overview of demand and supply (PDF, 170 kB) Regula Ritter, responsAbility
- ProCredit Bulgarien (PDF, 637 kB) Hanns Martin Hagen, KfW Entwicklungsbank & Harald Hüttenrauch, KfW Bankengruppe
- BRAC Bangladesh (PDF, 167 kB) Joost Zuidberg, FMO & Haje Schütte, KfW Entwicklungsbank
- BOLD 2006-01 Securitization (PDF, 60 kB) Jean-Philippe de Schrevel / Camilo Mendez, BlueOrchard Finance s.a.
- GMF (PDF, 135 kB) Fernando Lucano, GMF & Andre Laude, IFC
- EFSE (PDF, 573 kB) Klaus Maurer, BAI/EFSE & Monika Beck, KfW Entwicklungsbank
- MASSIF, Local Currency Fund (PDF, 208 kB) Els Boerhof, FMO
- CGAP Disclosure Guidelines – Reporting and performance indicators for Microfinance Investment Vehicles (PDF, 811 kB) Xavier Reille, CGAP