Microfinance Focus, July 8, 2011: Ambers&Co Capital Microfinanzas is a Madrid based impact investment fund advisory and management company. Founded in 2009 by Luca Torre and Agustin Victorica, it currently co-manages the GAWA Microfinance Fund – a $ 28 million fund investing in microfinance institutions and supporting companies.

In an exclusive interview with Microfinance Focus, Founder and Co-CEO, Luca Torre shares Ambers&Co’s investment approach and an investor’s perspective on the sector’s challenges. Excerpts

Microfinance Focus: Could you tell us something about the idea that went behind Ambers&Co. decision to enter into the field of microfinance?

Luca Torre: Both Agustin and I wanted to move forward from just working in the private sector and wanted to leverage what we have learnt while working in the capital markets and microfinance sector. We wanted to do something which is not only for our own benefit but also something which is making this world a better place. So we decided to start a microfinance fund and in this process we were looking for some well established company to help us to raise funds. We got in touch with Ambers&Co which is a very well established and respected financial advisory firm in Spain. The promoters of Ambers&Co very much liked the idea of starting an asset management firm focussed on microfinance and more broadly on impact investing. So they decided to back us up and help us in this effort.

Microfinance Focus: In September 2010, you completed a EUR 20 million (US$28 million) first closing of the Gawa Microfinance Fund (Gawa). Has any investment been made from the fund so far or any investment expected in near future?

Luca Torre: We just closed a transaction with a Mexican microfinance institution ‘Camesa’. We are very happy with this investment as it is a very well run organization. It is one of largest regulated microfinance institution in Mexico with a really good management team. It is a debt investment of Euro 2 million. It was in local currency and we hedged the currency risk through MFX Solutions.

Before summer we expect to make three other investments. One in Colombia, Latin America, one in Ghana, Africa and another in South Asia. All of these investments are preliminary approved by the investment committee.  

Microfinance Focus: Can you elaborate on your investment strategies?

Luca Torre: We have a pretty flexible investment strategy and that is what distinguishes us from our competitors. It is flexible in two ways. First, we can make investments in three kinds of targets that include microfinance institutions, financial institutions that lend to small-medium enterprises and other companies that promote financial inclusion. These companies could be payment platforms, mobile banking, microinsurance etc. In this way we are able to go a little beyond the traditional microfinance universe.

Second, it is hybrid fund so we expect to make 70 percent of our investment in debt like investments, including senior debt, sub-ordinate debt or convertible debt and 30 percent of the fund will be invested in equity which can be preferred equity or traditional equity.

For investments we have selected the regions where we feel that the macroeconomic and political situation is stable. We have specifically avoided countries which have Populist governments because we believe that microfinance as an asset class is a pretty good investment. Often what has caused defaults was just an unfriendly regulation or government.

As first time mangers we need to be really careful on building a positive track record and our investors are not willing to take too much political risk.

Microfinance Focus: Will Ambers&Co Capital Microfinanzas be setting up other funds similar to GAWA?

Luca Torre: We’ll be doing so. Our objective is to become a diversified impact investment platform which can possibly go beyond microfinance and get into other equally interesting areas of impact investing. At the moment we are not raising any other fund but in the mid-term future we certainly expect to grow.

Microfinance Focus: As an investor, are you cautious of the overheated markets?

Luca Torre: One of our investment criteria is to avoid investing in over penetrated regions. We are expected to invest in Colombia soon and we specifically selected a region which is very rural and not very well penetrated. The same thing is happening in Peru where we are seeing some kind of over indebtedness and overheating. We do not expect to make investments in regions that we believe have a lot of over indebtedness.

Another aspect we believe in and which seems to be a very positive development in India is transparency and credit bureaus. Knowing the level of indebtedness of our borrowers is a very important factor. We favourably look at those countries that have good regulatory and transparent frameworks. Peru, for instance has a well built regulatory framework and strong supervisory bodies.

Microfinance Focus: How do you think that commercial interest of investors can work in line with social mission of microfinance institution?

Luca Torre: I believe that social and commercial missions often go hand in hand. If you do good to your clients, they will be more faithful to you and be better payers than if you don’t treat them well and don’t build a good reputation among your client base. I think this is the first overarching truth in microfinance.

We think that we walk the talk in this sense because one of the very important criteria while selecting our investments is organization’s social mission. It should not be just a claim in the website but it should be the people who really believe that their mission is to have a positive impact on the clients. They actually have tools to measure the impact they had. As soon as we get in we require them to report to us their social metrics on a regular basis.

As lenders we are not looking for an investment where the microfinance institution is growing really fast. For example we are now in a close discussion with a fast growing institution and we are asking them to moderate there growth but rather focusing on their clients’ needs.

Microfinance Focus: Do you think there is a need to invest and build up microfinance sector in the developed regions as well where we are seeing many crumpling economies?

Luca Torre: I believe that microfinance has to be sustainable and having it work sustainably in the developed economies is very hard. There are some people who are doing it but there are very few examples where microfinance institutions were able to scale up very quickly like in India or other territories.

There is certainly some space for microfinance in developed countries but it not as large as in developing countries. My second thought is that banks should be doing this in developed countries. They should be serving the people who are not being reached by financial services. In developed countries there are many co-operatives and credit unions which are doing a wonderful job in serving the underserved.

Microfinance Focus: What are your views on the recent crisis in the Indian microfinance sector? Were you looking forward to an investment opportunity in India?

Luca Torre: I think there has been a vicious circle of media looking for news and the industry was not able to reply properly to some of the critics of the microfinance model. Before the crisis we were looking at India but now we are a little bit on hold on that region.