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Microfinance – An Emerging Asset Class?
 The Role of Capital Markets for the Expansion of the Industry



        Creating Opportunities in Emerging Markets

                       André Laude, Chief Investment Officer
                                    Global Financial Markets
                                              March 10, 2010
Microfinance – An Emerging Asset Class?
              The Role of Capital Markets for the Expansion of the Industry


1. Microfinance and IFC                                                              2


2. Microfinance and the Financial Crisis                                             7


3. Microfinance as an Asset Class                                                   11

4. Case Studies                                                                     15




                                                       Creating Opportunities   2
IFC is the world’s largest multilateral institution
              focused on private sector development
• IFC is the main driver of private sector development in the World Bank Group
• IFC‟s purpose is to create opportunity for people to escape poverty and improve
  their lives by:
         Promoting open and competitive markets in developing countries
         Supporting companies and other private sector partners where there is a gap
         Helping to generate productive jobs and deliver essential services to the underserved
         Catalyzing and mobilizing other sources of finance for private enterprise development
• In FY09, IFC committed US$10.5 billion and mobilized an additional US$4.0 billion
  for 447 investments in 103 developing countries
• In FY09, IFC‟s committed portfolio amounted to US$34.5 billion, representing
  investments in 1,579 companies
• IFC will typically contribute 5%-20% in equity investments and maintain the
  investment for 8 to 15 years
• IFC is profit oriented, charging market rates for its products and services
• IFC‟s bonds are in strong demand all over the world and are assigned the highest
  rating (AAA/Aaa) by Moody‟s, S&P and Fitch
• To be close to clients, more than half of IFC‟s 3,402 staff work in field offices
                                                                            Creating Opportunities   3
IFC’s core objective in microfinance is to connect
                microfinance to commercial capital
• Offering market based financing, in pricing, structures and
  monitoring practices
• Engaging regulatory authorities on a case-by-case basis                                  development
• Creating collective investment vehicles suitable for social and                                 impact
  commercial investors (AIM, ProCredit, LFS, PlaNet/MicroCred,
  Shorecap, etc.)
• Enabling the access of MFIs to local currency funding in domestic                    build large
  capital markets by providing credit enhancement to bond issues                     sustainable MF
                                                                                     business cases
  and other instruments
                                                                       private capital invests only
• As a member of the World Bank Group, supporting                        in profitable businesses
  disclosure standards and information              private sector resources vital for large scale
  dissemination through the Consultative                      sustainable microfinance
  Group to Assist the Poor
  (CGAP)                               only large scale = meaningful development impact


                                     microfinance is a poverty reduction tool

                                                                         Creating Opportunities   4
IFC is at the forefront of the microfinance
                              industry’s development
• Leader in “crowding in” the private            US$ million      IFC’s Cumulative and Annual Commitments and Client Growth „000 clients
                                                                                    (Fiscal Years 1995-2009)
  sector through risk sharing and                  1,400                                                                                                           9,000
                                                                                                                                                       1,291
  market placement transactions                                                                                                                8,057               8,000
                                                   1,200
• Strategic partnerships with leading
                                                                                                                                                                   7,000
  global networks and banks                        1,000
                                                                                                                                          5,682
                                                                                                                                         918
• Milestones:                                                                                                                                                      6,000

                                                                                                                              4,300
   ProCreditBiH was IFC‟s first investment in      800                                                                                                            5,000
    microfinance
                                                                                                                 3,500       602                                   4,000
   2000-2002: Roll-out of Pro Credit model         600
    and transformation of Acleda and                                                                 2,537      407                                                3,000
    Compartamos                                     400                                1,388                                                              373
                                                                                                                                               315
   2003-2007: Diversification into debt &                                   890                     275                                                           2,000
                                                                                       225
    equity funds, (AIM, Shorecap, GMF, EFSE),       200          398                                                             195
                                                                           133                                     132
    credit enhancement for bonds /                                               85           93                                                                   1,000
                                                                50 50                                      49
    syndications for individual MFIs
                                                      -                                                                                                            -
    (Compartamos, Edyficar, MiBanco)
                                                             1995-2002      2003        2004          2005       2006         2007        2008          2009
                                                          Cumulative Commitments ($M) - LHS        Annual New Commitments ($M) - LHS       Number of clients ('000) - RHS

  Crisis Response: Microfinance Enhancement Facility (MEF)
        Signing & launch: Feb 5, 2009
        Target fund size: US$500 million (IFC: US$150 million / KfW: US$130 million / OeEB: US$25 million / German Gvt:
         US$36 million / EIB: US$50 million)
        Objective: Support sound microfinance institutions worldwide that are facing funding shortfalls

                                                                                                                      Creating Opportunities   5
Microfinance – An Emerging Asset Class?
              The Role of Capital Markets for the Expansion of the Industry


1. Microfinance and IFC                                                              2


2. Microfinance and the Financial Crisis                                             7


3. Microfinance as an Asset Class                                                   11

4. Case Studies                                                                     15




                                                       Creating Opportunities   6
As Microfinance is more commercial and integrated in the
mainstream financial sector, it is more exposed to the crisis
• The global microfinance sector has nearly reached US$30 billion in asset size reaching
  130 million clients worldwide
• 15 years of successful growth – exposed to various types of crises (political threats,
  inflation, recessions, and financial sector break-downs)
• Previous crises were confined to countries/regions
• According to CGAP‟s survey of 400 microfinance institutions (MFIs):
        About 60% of respondents indicated that
         their clients are finding it harder to repay their loans
         This phenomenon is most severe in the Europe, Central
                                                                      Liquidity constraints for ECA
         Asia (ECA) and Latin America (LAC) regions
                                                                         MFIs next 6-12 months
        MFIs indicated that clients are spending more of their
         income on food compared to October 2008, especially                                         33%
         in Asia and Sub-Saharan Africa
        The quality of MFI portfolios world-wide is deteriorating:                                        no
         69% of respondents reported an increase in portfolio         67%
                                                                                                           yes
         at risk (PAR)
        ECA MFIs will face more liquidity needs next year




                                                                            Creating Opportunities   7
Heightened refinancing and deposit withdrawal risk
      for MFIs slows the microfinance industry’s growth
• Resources for refinancing are quickly drying up locally and internationally,
  leading to an increase in borrowing costs for MFIs - Bank lines are being pulled
  and in some cases deposits are being eroded
     Strong MFIs cannot tap commercial refinancing for growth, either through loans,
      securitizations or deposit mobilization –Tier II and III MFIs appear to be struggling
      more with liquidity issues
     MFIs with savings have been less affected by the credit crunch, and 57% reported
      they were willing to expand their loan portfolio in the next six months
     Deposit taking institutions are less exposed to refinancing risk.
• News of international banks collapsing can lead to deposit withdrawal – as
  experienced in ECA in September 2008
     The ECA region is hit the hardest by loan delinquency, where 88% of the surveyed
      institutions report increasing PARs
• MFIs slowing growth (30-40% annual growth could drop to 8-15%) - 23% of MFIs
  will downsize their staff to trim costs. This marks a clear reversal of the
  expansionary trend in staff levels over the past years

                                                                       Creating Opportunities   8
However, the microfinance industry has proven to
            be fairly resilient in spite of the crisis
Growth and profitability slow down:
• PAR > increased during Q1 2009
• Loan loss provisioning rising
• Cost of financing / cost of hedging increasing
…but industry fundamentals remain strong
Microfinance Investment Vehicles (MIVs) and Development Finance Institutions (DFIs)
funding growth:
• 104 microfinance investment funds with US$6.5 billion in assets / 35% growth in 2008
• 11 new microfinance funds in 2008
• 16 DFIs had $4.8 billion outstanding as of December 2008 / 24% growth in 2008
• Half of the DFIs increased 2009 projections to respond to the financial crisis
Lessons learned & opportunities:
• Some markets overheated through over availability of foreign funding (Bosnia, Nicaragua, Morocco)
• Focus on growth hand-in-hand with weak underwriting criteria and risk management policies of MFIs
• Opportunity for consolidation and required adjustments on the operational/risk management of MFIs
• Greater need for deposit-led approach for building stable financial systems


                                                                                   Creating Opportunities   9
Microfinance – An Emerging Asset Class?
               The Role of Capital Markets for the Expansion of the Industry

1. Microfinance and IFC                                                              2


2. Microfinance and the Financial Crisis                                             7


3. Microfinance as an Asset Class                                                   11

4. Case Studies                                                                     15




                                                      Creating Opportunities   10
Microfinance has yet to become an established
              asset class for institutional investors
Asset class:
• Definition: an asset that is suitable for inclusion in an investment portfolio
• Criteria: in order to be suitable, the asset class must fulfill certain requirements:
        Recognizable as a distinct kind of asset
        Relied upon to perform consistently in similar circumstances
        Liquid: so managers can trade, portfolios need volume, ratings, listings and research
        Establish track record: all
Microfinance as an Asset Class:
• Development: Not there yet, but its homogeneity brings it close to the definition - however it
  remains illiquid
        Markets are not likely to develop until there is a critical mass of exposure among a large number
         of investors so that willing buyers can be matched with willing sellers
• What can help?
        Microfinance remains uncorrelated to other emerging market assets - reducing volatility
        Further rating agency involvement in rating microfinance institutions (MFIs) and collateralized
         debt obligations (CDOs)
        Further bank involvement in the asset class
        IFIs involvement through credit enhancement and ability to invest in market downturns



                                                                                 Creating Opportunities   11
New opportunities to develop microfinance as an asset
         class are encouraging – IFIs can also help
Challenges:
• Less data available for MFIs than larger financial institutions; less data available for microfinance
  investment vehicles (MIVs) than standard CDOs (average 2-3 three years track record)
• MIVs are less diversified than standard CDOs (i.e.., 20 MFIs in 9 countries)
• CDO Portfolios have shorter maturities (5-7 years)
• Risk perception
• Current market leads to limited investor appetite even from socially-responsible investors (SRIs)
New Opportunities:
• Financial Institutions are increasingly involved in CDO placements and invest in equity/first loss
  tranches along side IFIs (Citi and IFC in the Global Microfinance Facility), JP Morgan
• Rating agencies are analyzing the underlying portfolio of MFIs (track record in rating individual MFIs –
  Fitch), fund management performance, and role of IFIs
• MFIs completing successful bond offerings and securitizations (ProCredit, BRAC, Compartamos,
  Edyficar, MiBanco) are establishing a track record
Role of IFIs:
• Products: Credit Enhancement, Local Currency Products, and Mezzanine Finance
• Value addition: Global knowledge, AAA status and expertise

                                                                                 Creating Opportunities   12
Microfinance – An Emerging Asset Class?
              The Role of Capital Markets for the Expansion of the Industry


1. Microfinance and IFC                                                              2


2. Microfinance and the Financial Crisis                                             7


3. Microfinance as an Asset Class                                                   11

4. Case Studies                                                                     15




                                                      Creating Opportunities   13
Compartamos: tapping the
                                                                           local bond market in Mexico
   Compartamos: Snapshot
   • The leading microfinance company in Mexico; offers micro loans (avg. US$400) primarily to women in rural areas
   • Started operations in 1992 as an NGO; was transformed into a SOFOL in 2000; received banking license in May 2006
   • Total assets of US$590 million, total equity of US$207 million (12/31/08)
   • Shareholders: Compartamos A.C. (founding NGO), ACCION, IFC, individual shareholders
   Main Challenge
   • Access to long-term funding in local currency
   • Not allowed to take deposits
   • Corporate rating is not sufficient to reach institutional investors
   Partial Credit Guarantee Structure
Bond size       MXN500 million (US$44 million equiv.) in 2-3 tranches   Security           unsecured, pari-passu with the bondholders
Maturity        5 years - 3 year grace, monthly amortization            Rating Upgrade     mxA+ on its own / enhanced mxAA by S&P and Fitch
IFC Guarantee   34% of the outstanding principal, covers debt service   Target Investors   pension funds, mutual funds, insurance companies
Currency        disbursement in MXN becomes a USD loan to IFC           Arranger           Banamex/Citibank

   Benefits of the structure
   • Investors: Lower probability of default, increase rate of recovery, and IFC‟s supervision and monitoring of covenants
   • Mexican capital markets: Diversify investment paper, institutional investors tapping a new sector, expand the range of
     AA papers, and introduce microfinance as a new asset class
   • Compartamos: Access MXN resources, reach institutional investors, ensure longer maturity, and access a larger and
     more stable funding base

                                                                                                       Creating Opportunities   14
IFMR Capital: Securitization of micro-loans
                                       originated by multiple MFIs in India
        Originators: Snapshot
        • Asirvad Microfinance Pvt Ltd, Sahayata Microfinance Pvt Ltd, Satin Creditcare Network Ltd, and Sonata
          Finance Pvt Ltd: Small/Mid-sized MFIs operating in India
        • No past track record of rated micro-loans pools as Originators/Servicers
        Main Challenge
        • Smaller MFIs have limited capital market access
        • Small/Mid-sized MFIs lack substantial amounts of capital to generate enough unencumbered portfolio for a
          securitization
        Multi-Originator Micro-loans Securitization Structure

Size                   Rs.308 million (US$6.5 million equiv.) in 2 tranches   Maturity                 11 months
Senior P1+ rated       Rs.237 million (US$5 million equiv.)                   Average loan size        Between Rs.4,200-15,000
tranche                Subscribed by the treasury department of a bank                                 (US$88-316)
Unrated subordinated   Rs. 71 million (US$1.5 million equiv.)                 Credit enhancement       Rs.41 million cash collateral
tranche                Subscribed by IFMR Capital                                                      to meet shortfalls in pool
                                                                                                       securitized by Originators
Number of contracts    42,079

        Benefits of the structure
        • Investors: Benefit from diversification via an asset backed by 42,000 micro-loans originated by a
          geographically diverse set of MFIs, and low correlation to other asset classes
        • Indian capital markets: Diversify investment paper, institutional investors tapping a new sector, expand
          the range of P1+ (short term) papers, and introduce microfinance as a new asset class
        • Originators: Diversify sources of funding, and reduced funding costs from the credit enhancement structure

                                                                                             Creating Opportunities   15
Contact Information

               IFC Paris
          66, Avenue d‟Iéna
         75116 Paris, France
           +33 1 4069 3060




             André M. Laude
          Chief Investment Officer,
Global Financial Markets – Microfinance Group




Website: http://www.ifc.org


                                                Creating Opportunities   16

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Microfinance as an asset class and related case studies

  • 1. Microfinance – An Emerging Asset Class? The Role of Capital Markets for the Expansion of the Industry Creating Opportunities in Emerging Markets André Laude, Chief Investment Officer Global Financial Markets March 10, 2010
  • 2. Microfinance – An Emerging Asset Class? The Role of Capital Markets for the Expansion of the Industry 1. Microfinance and IFC 2 2. Microfinance and the Financial Crisis 7 3. Microfinance as an Asset Class 11 4. Case Studies 15 Creating Opportunities 2
  • 3. IFC is the world’s largest multilateral institution focused on private sector development • IFC is the main driver of private sector development in the World Bank Group • IFC‟s purpose is to create opportunity for people to escape poverty and improve their lives by:  Promoting open and competitive markets in developing countries  Supporting companies and other private sector partners where there is a gap  Helping to generate productive jobs and deliver essential services to the underserved  Catalyzing and mobilizing other sources of finance for private enterprise development • In FY09, IFC committed US$10.5 billion and mobilized an additional US$4.0 billion for 447 investments in 103 developing countries • In FY09, IFC‟s committed portfolio amounted to US$34.5 billion, representing investments in 1,579 companies • IFC will typically contribute 5%-20% in equity investments and maintain the investment for 8 to 15 years • IFC is profit oriented, charging market rates for its products and services • IFC‟s bonds are in strong demand all over the world and are assigned the highest rating (AAA/Aaa) by Moody‟s, S&P and Fitch • To be close to clients, more than half of IFC‟s 3,402 staff work in field offices Creating Opportunities 3
  • 4. IFC’s core objective in microfinance is to connect microfinance to commercial capital • Offering market based financing, in pricing, structures and monitoring practices • Engaging regulatory authorities on a case-by-case basis development • Creating collective investment vehicles suitable for social and impact commercial investors (AIM, ProCredit, LFS, PlaNet/MicroCred, Shorecap, etc.) • Enabling the access of MFIs to local currency funding in domestic build large capital markets by providing credit enhancement to bond issues sustainable MF business cases and other instruments private capital invests only • As a member of the World Bank Group, supporting in profitable businesses disclosure standards and information private sector resources vital for large scale dissemination through the Consultative sustainable microfinance Group to Assist the Poor (CGAP) only large scale = meaningful development impact microfinance is a poverty reduction tool Creating Opportunities 4
  • 5. IFC is at the forefront of the microfinance industry’s development • Leader in “crowding in” the private US$ million IFC’s Cumulative and Annual Commitments and Client Growth „000 clients (Fiscal Years 1995-2009) sector through risk sharing and 1,400 9,000 1,291 market placement transactions 8,057 8,000 1,200 • Strategic partnerships with leading 7,000 global networks and banks 1,000 5,682 918 • Milestones: 6,000 4,300  ProCreditBiH was IFC‟s first investment in 800 5,000 microfinance 3,500 602 4,000  2000-2002: Roll-out of Pro Credit model 600 and transformation of Acleda and 2,537 407 3,000 Compartamos 400 1,388 373 315  2003-2007: Diversification into debt & 890 275 2,000 225 equity funds, (AIM, Shorecap, GMF, EFSE), 200 398 195 133 132 credit enhancement for bonds / 85 93 1,000 50 50 49 syndications for individual MFIs - - (Compartamos, Edyficar, MiBanco) 1995-2002 2003 2004 2005 2006 2007 2008 2009 Cumulative Commitments ($M) - LHS Annual New Commitments ($M) - LHS Number of clients ('000) - RHS Crisis Response: Microfinance Enhancement Facility (MEF)  Signing & launch: Feb 5, 2009  Target fund size: US$500 million (IFC: US$150 million / KfW: US$130 million / OeEB: US$25 million / German Gvt: US$36 million / EIB: US$50 million)  Objective: Support sound microfinance institutions worldwide that are facing funding shortfalls Creating Opportunities 5
  • 6. Microfinance – An Emerging Asset Class? The Role of Capital Markets for the Expansion of the Industry 1. Microfinance and IFC 2 2. Microfinance and the Financial Crisis 7 3. Microfinance as an Asset Class 11 4. Case Studies 15 Creating Opportunities 6
  • 7. As Microfinance is more commercial and integrated in the mainstream financial sector, it is more exposed to the crisis • The global microfinance sector has nearly reached US$30 billion in asset size reaching 130 million clients worldwide • 15 years of successful growth – exposed to various types of crises (political threats, inflation, recessions, and financial sector break-downs) • Previous crises were confined to countries/regions • According to CGAP‟s survey of 400 microfinance institutions (MFIs):  About 60% of respondents indicated that their clients are finding it harder to repay their loans This phenomenon is most severe in the Europe, Central Liquidity constraints for ECA Asia (ECA) and Latin America (LAC) regions MFIs next 6-12 months  MFIs indicated that clients are spending more of their income on food compared to October 2008, especially 33% in Asia and Sub-Saharan Africa  The quality of MFI portfolios world-wide is deteriorating: no 69% of respondents reported an increase in portfolio 67% yes at risk (PAR)  ECA MFIs will face more liquidity needs next year Creating Opportunities 7
  • 8. Heightened refinancing and deposit withdrawal risk for MFIs slows the microfinance industry’s growth • Resources for refinancing are quickly drying up locally and internationally, leading to an increase in borrowing costs for MFIs - Bank lines are being pulled and in some cases deposits are being eroded  Strong MFIs cannot tap commercial refinancing for growth, either through loans, securitizations or deposit mobilization –Tier II and III MFIs appear to be struggling more with liquidity issues  MFIs with savings have been less affected by the credit crunch, and 57% reported they were willing to expand their loan portfolio in the next six months  Deposit taking institutions are less exposed to refinancing risk. • News of international banks collapsing can lead to deposit withdrawal – as experienced in ECA in September 2008  The ECA region is hit the hardest by loan delinquency, where 88% of the surveyed institutions report increasing PARs • MFIs slowing growth (30-40% annual growth could drop to 8-15%) - 23% of MFIs will downsize their staff to trim costs. This marks a clear reversal of the expansionary trend in staff levels over the past years Creating Opportunities 8
  • 9. However, the microfinance industry has proven to be fairly resilient in spite of the crisis Growth and profitability slow down: • PAR > increased during Q1 2009 • Loan loss provisioning rising • Cost of financing / cost of hedging increasing …but industry fundamentals remain strong Microfinance Investment Vehicles (MIVs) and Development Finance Institutions (DFIs) funding growth: • 104 microfinance investment funds with US$6.5 billion in assets / 35% growth in 2008 • 11 new microfinance funds in 2008 • 16 DFIs had $4.8 billion outstanding as of December 2008 / 24% growth in 2008 • Half of the DFIs increased 2009 projections to respond to the financial crisis Lessons learned & opportunities: • Some markets overheated through over availability of foreign funding (Bosnia, Nicaragua, Morocco) • Focus on growth hand-in-hand with weak underwriting criteria and risk management policies of MFIs • Opportunity for consolidation and required adjustments on the operational/risk management of MFIs • Greater need for deposit-led approach for building stable financial systems Creating Opportunities 9
  • 10. Microfinance – An Emerging Asset Class? The Role of Capital Markets for the Expansion of the Industry 1. Microfinance and IFC 2 2. Microfinance and the Financial Crisis 7 3. Microfinance as an Asset Class 11 4. Case Studies 15 Creating Opportunities 10
  • 11. Microfinance has yet to become an established asset class for institutional investors Asset class: • Definition: an asset that is suitable for inclusion in an investment portfolio • Criteria: in order to be suitable, the asset class must fulfill certain requirements:  Recognizable as a distinct kind of asset  Relied upon to perform consistently in similar circumstances  Liquid: so managers can trade, portfolios need volume, ratings, listings and research  Establish track record: all Microfinance as an Asset Class: • Development: Not there yet, but its homogeneity brings it close to the definition - however it remains illiquid  Markets are not likely to develop until there is a critical mass of exposure among a large number of investors so that willing buyers can be matched with willing sellers • What can help?  Microfinance remains uncorrelated to other emerging market assets - reducing volatility  Further rating agency involvement in rating microfinance institutions (MFIs) and collateralized debt obligations (CDOs)  Further bank involvement in the asset class  IFIs involvement through credit enhancement and ability to invest in market downturns Creating Opportunities 11
  • 12. New opportunities to develop microfinance as an asset class are encouraging – IFIs can also help Challenges: • Less data available for MFIs than larger financial institutions; less data available for microfinance investment vehicles (MIVs) than standard CDOs (average 2-3 three years track record) • MIVs are less diversified than standard CDOs (i.e.., 20 MFIs in 9 countries) • CDO Portfolios have shorter maturities (5-7 years) • Risk perception • Current market leads to limited investor appetite even from socially-responsible investors (SRIs) New Opportunities: • Financial Institutions are increasingly involved in CDO placements and invest in equity/first loss tranches along side IFIs (Citi and IFC in the Global Microfinance Facility), JP Morgan • Rating agencies are analyzing the underlying portfolio of MFIs (track record in rating individual MFIs – Fitch), fund management performance, and role of IFIs • MFIs completing successful bond offerings and securitizations (ProCredit, BRAC, Compartamos, Edyficar, MiBanco) are establishing a track record Role of IFIs: • Products: Credit Enhancement, Local Currency Products, and Mezzanine Finance • Value addition: Global knowledge, AAA status and expertise Creating Opportunities 12
  • 13. Microfinance – An Emerging Asset Class? The Role of Capital Markets for the Expansion of the Industry 1. Microfinance and IFC 2 2. Microfinance and the Financial Crisis 7 3. Microfinance as an Asset Class 11 4. Case Studies 15 Creating Opportunities 13
  • 14. Compartamos: tapping the local bond market in Mexico Compartamos: Snapshot • The leading microfinance company in Mexico; offers micro loans (avg. US$400) primarily to women in rural areas • Started operations in 1992 as an NGO; was transformed into a SOFOL in 2000; received banking license in May 2006 • Total assets of US$590 million, total equity of US$207 million (12/31/08) • Shareholders: Compartamos A.C. (founding NGO), ACCION, IFC, individual shareholders Main Challenge • Access to long-term funding in local currency • Not allowed to take deposits • Corporate rating is not sufficient to reach institutional investors Partial Credit Guarantee Structure Bond size MXN500 million (US$44 million equiv.) in 2-3 tranches Security unsecured, pari-passu with the bondholders Maturity 5 years - 3 year grace, monthly amortization Rating Upgrade mxA+ on its own / enhanced mxAA by S&P and Fitch IFC Guarantee 34% of the outstanding principal, covers debt service Target Investors pension funds, mutual funds, insurance companies Currency disbursement in MXN becomes a USD loan to IFC Arranger Banamex/Citibank Benefits of the structure • Investors: Lower probability of default, increase rate of recovery, and IFC‟s supervision and monitoring of covenants • Mexican capital markets: Diversify investment paper, institutional investors tapping a new sector, expand the range of AA papers, and introduce microfinance as a new asset class • Compartamos: Access MXN resources, reach institutional investors, ensure longer maturity, and access a larger and more stable funding base Creating Opportunities 14
  • 15. IFMR Capital: Securitization of micro-loans originated by multiple MFIs in India Originators: Snapshot • Asirvad Microfinance Pvt Ltd, Sahayata Microfinance Pvt Ltd, Satin Creditcare Network Ltd, and Sonata Finance Pvt Ltd: Small/Mid-sized MFIs operating in India • No past track record of rated micro-loans pools as Originators/Servicers Main Challenge • Smaller MFIs have limited capital market access • Small/Mid-sized MFIs lack substantial amounts of capital to generate enough unencumbered portfolio for a securitization Multi-Originator Micro-loans Securitization Structure Size Rs.308 million (US$6.5 million equiv.) in 2 tranches Maturity 11 months Senior P1+ rated Rs.237 million (US$5 million equiv.) Average loan size Between Rs.4,200-15,000 tranche Subscribed by the treasury department of a bank (US$88-316) Unrated subordinated Rs. 71 million (US$1.5 million equiv.) Credit enhancement Rs.41 million cash collateral tranche Subscribed by IFMR Capital to meet shortfalls in pool securitized by Originators Number of contracts 42,079 Benefits of the structure • Investors: Benefit from diversification via an asset backed by 42,000 micro-loans originated by a geographically diverse set of MFIs, and low correlation to other asset classes • Indian capital markets: Diversify investment paper, institutional investors tapping a new sector, expand the range of P1+ (short term) papers, and introduce microfinance as a new asset class • Originators: Diversify sources of funding, and reduced funding costs from the credit enhancement structure Creating Opportunities 15
  • 16. Contact Information IFC Paris 66, Avenue d‟Iéna 75116 Paris, France +33 1 4069 3060 André M. Laude Chief Investment Officer, Global Financial Markets – Microfinance Group Website: http://www.ifc.org Creating Opportunities 16