IFMR Capital Structures Rs. 264.7 mn Microfinance Securitisation with Grameen Koota

Microfinance Focus, March 30, 2010: IFMR Capital recently structured and arranged a Rs. 264.7 million securitisation transaction. The transaction is backed by 25,446 microloans originated by Bangalore based MFI ( Microfinance Institution) , Grameen Financial Services P. Ltd., popularly known as Grameen Koota.

IFMR Capital Pioneer III, the Special Purpose Vehicle created for the transaction, has issued two tranches of securities rated by Crisil, India’s foremost rating agency: an 80% senior tranche rated AA(so) that was subscribed to by IndusInd bank and a 20% subordinated junior tranche rated BBB(so) that was invested into by IFMR Capital. Both tranches have an expected maturity of 13 months.

According to Suresh Krishna, the MD of Grameen Koota, “This transaction is significant not only because it is the first time that Grameen Koota has done a securitisation of this scale, but also because this transaction allows us access to newer funding sources, which will be a robust support system for the millions of poor and low-income households that we serve, across India, through financial products and developmental services.”

“This transaction proves that even in peak priority sector lending season, microfinance securitisation can be highly competitive”, Sucharita Mukherjee, the CEO of IFMR Capital said pointing to the 300 basis points reduction in cost of funding for Grameen Koota that this transaction enabled. “This transaction also affirms that capital markets access for high quality microfinance institutions with sound systems is indeed robust.”

The structure created by IFMR Capital ensures that the incentives of the originator, servicer and structure are aligned. While the originator and servicer, Grameen Koota, provides cash collateral of 11.9% of the pool principal, the structure, IFMR Capital, has invested in the subordinated junior tranche. The cash collateral and the subordination of payments to junior tranche in the waterfall mechanism ensures that the senior investor is protected against losses upto Rs. 90.8 million and any first loss is borne by the originator and the second loss by the structurer.

Till date, IFMR Capital has completed microfinance securitisation transactions worth more than Rs. 1.2 billion. It recently concluded the landmark Rs 308 million multi-originator securitisation backed by microloans originated by four Indian MFIs.

Insurance honchos to chair Hanson Wade’s MicroInsurance Summit 2010

Microfinance Focus, March 30, 2010: Mr. Peter Braumüller, Chair, Executive Committee, International Association of Insurance Supervisors (IAIS) and Managing Director, Insurance and Pensions, Austrian Financial Market Authority (FMA) and Brandon Mathews, Head of Emerging Consumer MicroInsurance, Zurich Financial, will both chair Hanson Wade’s MicroInsurance Summit, May 26-27, 2010, at Marriott South Beach, Miami.

The conference will also be addressed by several experts’ speakers including, António Cássio dos Santos, President and CEO, Mapfre Brasil , Nikhil da Victoria Lobo, Vice President – Public Sector Business, Swiss RE , Alesia Rodriguez Pardo, Member of the Working Group, FIDES-BID-FOMIN Project, Executive President, CAMARASEG-Cámara de Aseguradores de Venezuela  , Maria Victoria Saenz-Samper, Senior Operations Specialist, FOMIN, IDB-Inter-American Development Bank  and many other experts.

The conference sessions will cover host of issues including discussions on the role of regulation and supervision in creating, enabling and facilitating the development of micro insurance, Innovative distribution practices to lower costs and increase outreach and insights on how to devise and offer demand driven and affordable products.

Hanson Wade’s first MicroInsurance conference, held in London last month.

IFC invested $2 million in Tajikistan based microfinance startup institution

Microfinance Focus, March 30, 2010: IFC, a member of the World Bank Group, has extended its support to a new microfinance bank in Tajikistan expand the availability of credit for micro and small enterprises. AccessBank Tajikistan, which announced the start of operations yesterday, will provide financing to private entrepreneurs and smaller businesses throughout the country.

IFC invested $2 million in equity and provided advisory support to help the bank’s startup. The bank will operate as a closed joint stock company with a full banking license. IFC also may consider providing additional debt financing to help the bank grow its lending operations.

Shahbaz Mavaddat, IFC Director for Southern Europe and Central Asia, said, “We are happy to support AccessBank Tajikistan. Smaller enterprises are crucial for developing the economy, boosting the services and trade sectors, and contributing to the expansion of the middle class. We will continue to back the new bank and wish it much success.”

The bank is expected to have a strong outreach and effect on the sustained growth of micro and small businesses. It plans to operate 17 branches throughout the country and to support over 37,000 loan disbursements over the next five years.  In addition to IFC, the bank’s other shareholders are Access Microfinance Holding, the European Bank for Reconstruction and Development, and KfW Bankengruppe.

IFC supports microfinance activities worldwide and is one of the largest investor in the sector. As of June 2009, IFC’s global commitments in the sector exceeded $1.3 billion in 189 projects.

Microfinance and Territorial Anchorage: A Review of the Literature

By Bernadette Grosheny

Microfinance Focus, March 30, 2010: For over 30 years, U.S. commercial banks subject to CRA (Community Reinvestment Act) have innovated in terms of products, systems and methods in order to produce more than 1400 billion dollars in investments and loans to businesses and individuals poorly covered by the traditional banking market [K. HUDSON]. They have done this cost effectively, without generating excessive subprime and debt. The partnerships they have forged with associations, social enterprises and local officials allowed them to obtain profits by “reinvesting” local savings where they were obtained. With a leverage factor of public support for economic profit of 20, the CRA has helped in many cases to substitute bank capital for grants. By linking financial innovation and consumer protection to generate profits and create wealth in the territories, it reconciles the two approaches, one focused on financial sustainability [Zeller, Meyer, 2002] and the other  emphasizing on its social sustainability [Morduch, 2000, Balkenhol, 2009] that has generated much debate concerning the analysis of the impact of microfinance. Without the support of a similar legal framework, the specificity of microfinance institutions as a tool for inclusion of people excluded from formal financial system, is based on two social ties: solidarity and participation of a marginalized population and proximity to the institution microfinance institutions (MFIs) and clients (geographical proximity, social, cultural) [F. KERN, G. BISSIRIOU, 2009]. This proximity creates links in one place [VELTZ P., 2002] across a territory.

More than the financial aspect, the proximity and accompanying persons constitute a value added, a “blue ocean” [C. Kim, R. Mauborgne, 2008] for microfinance, provide capacity-building capabilities within the meaning of A. SEN providing real possibilities [A. SEN, 2010] and is no longer in direct competition with the traditional banking system that does not meet the demand of the population in developing countries.

Yet microfinance environment becomes increasingly competitive [0. MARTINEZ, 2007, D. ACCLASSATO, 2009], mainly in cities in developing countries. Therefore, the ability to create new space becomes a distinct managerial function. While some clients of MFIs (including urban areas) have access to a sometimes excessive range of services, competition and sources of over-indebtedness [Guerin et al., 2009], several market segments critical for endogenous and sustainable development are still poorly covered. These include, among others, remote rural areas with lower density, and very small businesses and employees in urban areas.

Through listening to client feedback, seeking to understand the cognitive structures [M. Vigezzi, 2005] the beneficiary, by the commitment and sense of belonging to the territory, in meeting the expectations of new applications often still unidentified, seeking to exploit territorial resources, that is to say a strong territorial base, it seems that “the social benefit of microcredit and microfinance could become greater than its financial cost” [JM, Servet, 2009, Collins D., Morduch J, S. RUTHERFORD, RUTHVEN W., 2009 ]. For territorial anchoring, microfinance institutions seek to build trust based on social capital [T. BAUDAIS, T. MONTALIEU, 2005].

The territorial anchoring of microfinance is reflected by taking into account the reality of local social, historical, cultural, social and material resources, as well as knowledge and skills that are not transferable to other areas. The IMF then enters a territorial specific project to enhance the value of the existing, for instance, the shea butter in Burkina Faso, organic cotton and sesame in Mali, the production of gari in Benin …. Developing countries abound in local expertise, knowledge disseminated widely within local communities. There is a specific relationship between local knowledge, wealth and innovation that often is extremely responsive to the aid of financial funding. Microfinance plays a key role for the valuing of territorial resources skills and knowledge that can generate a multiplier effect in revenues [JACQUET P. 2010], to increase performance without micro-activity without competing with imported products and to provide microfinance institution a Return on its Investment. This enables the local microenterprises to resist financial crisis of and strengthen their ability to repay loans. They respond to both local needs but also international demand (such as shea butter) and are an asset to the growth and development locally.

The territorial anchoring of the MFI is expressed mainly by its willingness to participate in a shared project. In its role as “banker developer” [C. GUIMOND, 2004], the IMF plays both the role of banker and adviser. By its proximity, the MFI gives importance to people, to specific resources, and it enhances the specificity of the territory. It participates in growth by supporting projects which are economically viable. Small local contractors play a vital role to ensure that these territorial resources are used. The IMF by linking local actors, mobilizing savings for projects conceived at the grassroots, supports the implementation of projects involved in this territory. This mobilization of actors within a territory and its resources is a challenge that the IMF in connection with the government is likely to take up through quality work.

The quality of relationships resulting from strong territorial roots can develop mutual trust that can allow the entire microfinance institution to work effectively. It is the territorial anchoring which ensures a good knowledge of the territory, people and resources. It is by the actors of the MFI than a MFI is rooted territorially. They are employees of the MFI, which by their human qualities and professional skills will establish roots in a territory to ensure its sustainability.

N.B. This paper was first presented at the CEREN-CERMI research seminar on March 18, 2010 at the Burgundy School of Business.

New $15 million credit facility for smaller Microfinance institutions

Microfinance Focus, March 30, 2010: The Overseas Private Investment Corporation (OPIC), CITI and international nonprofit Unitus, Inc. have finalized a $15 million credit facility that will help foster growth among high-potential microfinance institutions in challenging Markets.

“There is a lot of money going into what could be termed Tier I MFIs – those already possessing a level of scale and track record that make it relatively easy to attract commercial equity and debt. This deal targets smaller, younger Tier II and III MFIs providing similar microfinance services while in far more complicated fundraising positions,” said Richard Wardell, Unitus’s VP of Global Programs. “Our hope is that this work will catalyze the growth of another generation of Tier I MFIs, thus creating more opportunities for more families to improve their lives.”

The eight-year revolving debt and guarantee facility will see Unitus and OPIC sharing the risk on a series of transactions supporting high-potential MFIs. The deal limits the amount any single MFI can receive to $2 million, and loans to start-up and early stage MFIs in aggregate cannot exceed $12 million. With a presence in over 100 countries, Citi’s global network will provide local currency lending to minimize foreign exchange risk for these MFIs.

Dr. Lawrence Spinelli, Acting President of OPIC, said, “Projects such as this – empowering smaller MFIs during a time when capital available to them is scarce – are critical to the ongoing success of microfinance. OPIC is pleased to work with Unitus and Citi to strengthen the MFI network globally so that microentrepeneurs can, in turn, generate economic growth in their local communities.”

While OPIC has been working to support microfinance for many years – including its recently announced $250 million Global Microfinance Program with Citi – this is its first catalytic debt facility targeting early stage MFIs.

“Citi is pleased to be able to expand its long term partnership with OPIC and Unitus to extend local currency financing to emerging MFIs, supporting micro-entrepreneurship and stimulating economic growth,” said Bob Annibale, Global Director Citi Microfinance. Citi’s US Commercial Bank has developed expertise in serving the microfinance industry through the structuring of innovative financial products and services.

“In a very practical way, this facility will allow us to amplify the impact of the resources already at our disposal,” commented Wardell. “The confidence OPIC is showing in us reinforces what our supporters already know — that Unitus is committed to doing the greatest amount of good for the greatest number of families in need.”

LeapFrog Poised to Invest $112 Million in Insurance and Microfinance Companies

Microfinance Focus, March 29, 2010: LeapFrog Investments, a microinsurance fund, announced today that it has surged past its $100 million target capitalization, months ahead of schedule. The fund invests in high-growth, high-impact insurance and financial services companies in countries including India, the Philippines, South Africa, Kenya, and Ghana.

“Today we have achieved the synergy of profit and purpose,” said Dr. Andrew Kuper, President and Founder of LeapFrog. “We have opened the gates of the capital markets, ensuring that millions of vulnerable people, for the first time, will be able to build futures without fear.”

Some of the Leading global investors have aligned behind LeapFrog’s fund, IFC, a member of the World Bank Group, committed $20 million. The board of the Soros Economic Development Fund has approved a $7 million investment. Flagstone Reinsurance, a global reinsurer, has committed $12 million. In the largest investment announced today, KfW Entwicklungsbank and BMZ, the German Ministry for Economic Cooperation and Development, committed $26 million. Together with the $47 million raised by LeapFrog in 2009 amid the global financial crisis, these commitments bring the fund to $112 million, making leapFrog the largest dedicated investor in microinsurance worldwide.

“We are delighted to join a group of visionary investors backing the LeapFrog team to build high-growth companies that support critically underserved communities,” said Stewart Paperin, President of the Soros Economic Development Fund.  “Our investment represents a step in a very exciting direction, giving IFC the opportunity to increase our impact in an area where the need is great,” added Jyrki Koskelo, IFC’s Vice President for Global Industries.

Mark Byrne, Founder and Chairman of Flagstone Reinsurance, added: “Investing in ways that will couple a reasonable commercial return with flexible entrepreneurs has been shown to outperform direct charity as a way of improving outcomes for poor populations. Flagstone views our investment in LeapFrog as supporting our corporate social responsibility goals, but also as a foundation for an emerging high growth business opportunity.” BMZ Director General Harald Klein concluded by highlighting the diverse investors who now stand behind LeapFrog, in virtue of its “collaborative and innovative approach to minimizing risks for poor people.”

Major institutional investors in the fund also include the European Investment Bank, Omidyar Network, FMO, the Triodos-Doen and Hivos-Triodos funds, Accion International, SCOR, and Calvert. The team anticipates a third and final capital raise in the coming weeks.

With $112 million at the ready, LeapFrog’s team is now seeking out innovative insurance and financial services companies, as well as Asian and African businesses that own strong distribution platforms. Many others see low-income people as charity cases. LeapFrog sees them as the aspiring and inspiring majority of emerging market consumers, ready to seize the simple but essential financial tools needed to change their own lives.

Rabo India provides INR 250 mn Term loan to NBFC-microfinance BSFL

Microfinance Focus, March 29, 2010: Rabo India Finance Limited is a 100% subsidiary of Rabobank International has provided INR 250 Million to Bhartiya Samruddhi Finance Limited (BSFL) as a term loan.  BSFL, the flagship company of the BASIX group is registered with the Reserve Bank of India (RBI) as a Non Banking Finance Company (NBFC) offers microfinance and livelihoods promotion services.

According to Mr.Arindom Datta, Director  & Head, Rural & Development Banking at Rabo India, “We are in the process of building up the microfinance portfolio”.  In the month of January 2010, Rabo India has provided debt funds of INR 350 Million to Asmitha Microfin Limited (AML), one of the leading microfinance institutions in India.

EFSE, Microfinance investment firm signs a loan Agreement

Microfinance Focus, March 28, 2010: The European Fund for Southeast Europe (EFSE), one of the world’s largest microfinance investment fund, and the commercial bank Banca Intesa a.d. Belgrade (Banca Intesa), Serbia, announced the signing of a senior loan agreement. Under the agreement, Banca Intesa will take a loan of EUR 25 million from EFSE. The loan will be utilised for further on-lending to micro and small enterprises (MSEs) in Serbia, a sector that has been hit particularly hard by the crisis.

Sylvia Wisniwski, Chief Operating Officer of EFSE and Managing Director of EFSE’s Fund Advisor Finance in Motion GmbH, said: “The investment fits EFSE’s strategy of supporting well-managed and financially sustainable financial institutions that are at the same time committed to fair banking practices. Not only will the funding infuse long-term liquidity to support Banca Intesa’s lending program to small businesses, allowing the Bank to offer better loan conditions in the form of longer maturities to more than 1,500 additional small businesses. It also has a significant development impact on the Serbian economy, creating and securing jobs and income.”

“Strategic determination to support and invest in development of entrepreneurial spirit is what makes Banca Intesa one of Serbia’s leading banks in the small business segment. As the needs of our clients make the starting point in devising and creating our products, we strive to offering small entrepreneurs all services that large companies already have at their disposal. We expect that our cooperation with EFSE will stimulate the entrepreneurial sector and help them achieve the best results possible”, said Dejan Tešić, member of the Executive Board of Banca Intesa and Head of the Retail and Small Business Division.

Since its inception in December 2005, EFSE has invested a cumulative total of over EUR 710 million in Southeast Europe, facilitating more than 200,000 loans to MSEs and low-income private households.

Sylvia Wisniwski added: “EFSE will continue to help ensure a continuous flow of financing to small businesses. The Fund stands ready to invest over EUR 200 million in the Southeast European MSE finance sector in 2010. In doing so, the Fund will provide much-needed financing to more than 20,000 MSEs.”

Microfinance Cracking the Capital Markets

Microfinance Focus, March 28, 2010: ACCION International, an international not for profit organization working on microfinance issues and EDA Rural Systems, an Asian microfinance development and research organization, will jointly organize a major conference and investment marketplace focused on microfinance investment in South Asia, June 23-24 at the Taj Mahal Hotel in Delhi, India.

Microfinance Cracking the Capital Markets South Asia 2010 will strive to bring together a wide range of finance professionals to discuss new financing strategies, successes to date, challenges and trends of microfinance investment in South Asia, with particular focus on India.

Attendees will meet the new players, explore recent deals and assess the marketplace in an engaging program with ample opportunities for networking. In addition to the conference, an Investment Marketplace is planned to facilitate introductions and deal-making between MFIs and debt and equity investors.

Mexican microfinance lender Financiera Independencia announces bond offering of US$200 million

Microfinance Focus, March 28, 2010: Financiera Independencia, a  Mexican microfinance lender of personal loans to lower income segment individuals and working capital loans through group lending microfinance, announced today that it successfully placed a 144A / Reg S US$200 million of senior guaranteed notes (“the Notes”), according to an offical stement release by the company.

The Notes have a 5-year maturity and pay an annual interest rate of 10%. The Notes are rated BB- by both Standard & Poor’s and Fitch. Net proceeds from the Notes Offering will be used mainly to reduce the amounts of outstanding under certain of our revolving credit lines and for general corporate purposes.

“This successful transaction, which constitutes the first international debt offering by a Microfinance institution in Latin America, will bring us one step closer to achieving our medium term goal of diversifying our funding sources so that no single institution represents more than 25 percent of the Company’s funding,” commented Noel Gonzalez, Financiera Independencia’s Chief Executive Officer.

Bank of America Merrill Lynch and Morgan Stanley acted as joint book runners in this transaction.