MICROFINANCE IN

DEVELOPED COUNTRIES

MicroVest
GERMANY
LT COL SANJAY YADAV
 MicroFinance
Low Risk Investing with
Maximum Impact

TBLI 2005
November 3, 2005
Messe Frankfurt
 MicroVest is…

A Global Microfinance
Intermediary Linking
Microentrepreneurs in the
Developing World with Developed
Capital Markets.

Dedicated to helping the

world’s poor by offering
commercial funding to sound
microfinance institutions
Currently Banking the Bottom
Quartile of the Population.
 Product: MicroVest One

• A Commercial Microfinance Investment Fund

Managed by MicroVest Capital Management, LLC
• Created to demonstrate that markets have
misperceived the risk of lending to microfinance
institutions.
•Offering debt, equity, and retail notes at near
commercial rates to Socially Responsible Investors
• $15 million in Equity and over 60 Private Investors
• Anticipated Leveraging Above $50 million

• Specializing in Relationship
Banking with Transforming MFIs
 Microfinance Demand

• The World Bank estimates

worldwide theoretical Households w ith
microfinance demand at Access to
between US$150-250 billion. Sustainable MFIs
7%
– Approximately 400-500
million households are
in need of financial
services.
 The Current Funding Gap
• Microfinance Works: success has resulted in huge
theoretical demand.
• Current microfinance supply markets (donors) are
unable to meet demand.
• A funding gap exists between donor supply and
microfinance demand:
• Result: Some microentrepreneurs do not have access
to microfinance.

Question: Can commercial markets fill the

current funding gap?
 Bringing Capital to The Creditworthy
Microfinance Investing:

I NVESTORS
MicroVest is One of Several Funds
M ICROVEST throughout Europe and North America
MICROFINANCE INSTITUTIONS Using Microfinance Investing to Funnel
(I.E. “MICRO-BANKS”
SUCH AS XAC BANK IN
MONGOLIA)
Capital into the Microfinance Industry.
M ICROENTREPRENEURS

Unlike other funds:

• MicroVest operates within a commercial framework
- offering near commercial returns to investors
- lending to microfinance institutions at market rates.
• MicroVest believes that operating under these terms encourages
MFIs to become more efficient at lending to the poor
- Ultimately results in better servicing microentrepreneurs at lower costs.
 Bringing Capital to The Creditworthy
MicroVest Investment Objectives:
• To support self-sustaining financial businesses serving the entrepreneurial
poor
• To help build capital markets for the macro-economic systems of the
developing world
• To finance these social objectives by providing return-driven debt and
equity securities

50

150-200
Of all MFIs globally, MicroVest loans to well-run MFIs

the middle 200, those that have achieved

profitable operations. 8,000 – 9,000 MFIs
 A Low Risk Investment
• MFIs often have a surprisingly low credit risk:
• Loan repayment rates above 95% are now an industry minimum

• In many developing countries, microenterprises can account

for up to 60% of employment and anywhere from 10-50%
of GDP.
• Profit margins on the loan portfolios of MFIs are as high as
21.8% in Asia (the largest market in the world) and are
quickly becoming the industry norm.
Typical Microfinance "Bank"
Yield 40%
Cost of Funds 10%
Loan Losses 4%
Oprating Exp 20%
ROA 6%
 MicroVest Offers Investors
the Following Advantages
Market Rate-Adjusted Returns The Fund offers investors low-credit risk and market rate of returns
in global markets.
Professional Due Diligence The financial experience of the management team allows the Fund
to identify top investment opportunities in developing countries.
Ability to Tap Underdeveloped
Financial Markets The Fund identifies market imbalances and fills significant funding
gaps that meet the commercial needs of the poor.

Uncorrelated Asset Class
Traditional Venture Capital
Structure
Fund Diversification
Microfinance not only offers a low default rate, but moves in a
cycle that is not correlated with any traditional asset class, due to
the heavy reliance of microentrepreneurs on micro-loans provide.
The flexibility and time horizon inherent in MicroVest’s structure
allow the Fund to seek out opportunistic investments in countries
that are not typically courted by major financial players.
MicroVest’s portfolio currently includes 15 microfinance institutions in
9 countries and covers three continents.
 Maximizing Social Impact

For the Industry to Maximize the Social Impact to

Microentrepreneurs:
1.Needs to be an Increase in Commercial
Funding
2.Increase in Commercial Instrument Diversity
3.Need to Establish a Better System for Rating
Social Investment Funds