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88 • Microfinance for Bankers and Investors nearly all of that came from the public sector. After making 10 good, solid investments, and one standout success (Equity Bank, Kenya), Africap quickly put together its second round, $50 million, approximately half of it from new private investors.25 Bob Patillo, a shopping center developer from Georgia who became inter-ested in microfinance first through philanthropy and later as a social investor, has made it a personal challenge to draw private investors into microfinance. Patillo recognized that private investors needed quicker exit, greater diversity, and the ability to turn fund management over to a specialist. He conceived of a fund of funds that would foster trading of MFI equity. Investors in the fund of funds would be buying a mixed portfolio across the microfinance industry as a whole. Patillo also instigated the launch of the International Asso-ciation for Microfinance Investors as a focal point for new investors wishing to enter the market via investments into existing funds. IAMFI’s members include many familiar names in the mainstream investment world, such as Omidyar, MicroVest, J.P. Morgan, and BlueOrchard. TIAA-CREF and ProCredit. One of the highest profile deals in microfi-nance was the investment of TIAA-CREF, a California-based fund manager, in ProCredit Holding, a group of microfinance banks. In 2006, TIAA-CREF ranked eightieth on the Fortune 500 list of largest corporations in America, with more than $380 billion in managed assets. In addition to its core busi-ness—managing retirement funds—TIAA-CREF offers individual retirement accounts, mutual funds, life insurance, and socially screened funds. In 2006, TIAA-CREF created the Global Microfinance Investment Program (GMIP), funded with $100 million in assets from its $160 billion fixed annuity account. This account represents some 2.3 million investors. It is significant that assets were pledged from mainstream accounts, rather than from the socially respon-sible investment account. GMIP is, in effect, mainstreaming social invest-ment into the traditional portfolio.26 The GMIP made its first investment of $43 million in the equity of Pro-Credit Holding, the parent company of 19 small enterprise/microfinance banks in Eastern Europe, Latin America, and Africa. As of March 2006 the ProCredit Group had total assets of approximately $3 billion and more than 600,000 outstanding loans. ProCredit Holding has advantages as a target for mainstream investors over individual MFIs due to its size and geographic diversification. TIAA-CREF’s investment in ProCredit responds to the sup-port for social responsibility among many people within the fund manager’s Models of Financing Inclusive Finance • 89 customer base. It’s also a good investment because of microfinance’s low cor-relation with other asset classes, according to Ed Grzybowski, TIAA-CREF’s chief investment officer.27 This example illustrates how mainstream investment companies have handled some of the unfamiliarity of investing in microfinance. The IFC still retains a significant minority shareholding in ProCredit, and this boosts main-stream investor confidence, although TIAA-CREF’s investment allowed IFC to make a partial exit. The risk to equity was lowered by the Overseas Private Investment Company’s guarantee of some of ProCredit’s debt, by the cur-rencies involved in the transaction and by diversification across countries. Most important, investors trusted ProCredit’s growth, profitability, and stable track record. ProCredit is part of the “cream of the cream” of microfinance; there are few other possibilities that match its scale and quality. Sequoia and SKS. A few equity investors willing to dedicate their own staff resources have gone directly to individual MFIs without the mediation of an equity fund. In 2007, SKS, a large Indian MFI, received an equity investment by a mainstream venture capitalist, Sequoia Capital India. SKS Microfinance was a fast growing and newly profitable MFI serving nearly 600,000 women at the time of investment. SKS is tapping an immense market in providing not only microloans, but also a range of products including health insurance. Like many MFIs in India, SKS started life with very little equity and oper-ated with extremely high leverage in its early years. Its growth prospects depended on raising a solid new equity base. SKS’s dynamic CEO, Vikram Akula, attracted the venture capitalists of Sequoia Capital to provide the majority stake of an $11.5 million equity investment. SKS’s growth rate, prod-uct range, potential market, and leadership all made it attractive. Like Google and YouTube, in which Sequoia invested early on, SKS showed enormous growth potential, even though it had only earned profits for one or two years. At the time of investment those profits were quite modest. Getting in at this relatively early stage allowed Sequoia to obtain shares at a low valuation, which gives it good prospects for future returns. The managing director of Sequoia Capital India, Sumir Chadha, empha-sizes that this is a purely profit-motivated investment.28 For SKS, the backing of a firm like Sequoia will bring expert business-building advice as long as Sequoia is part of its ownership group. Since the investment, SKS has continued to grow rapidly. As of 2008, SKS works in 18 states across India, reaching 3 million women with microcredit and related services.29 Indian 90 • Microfinance for Bankers and Investors microfinance is attracting other investors, too: in 2007, Legatum Capital, a Dubai-based private equity firm, made a $25 million investment in Share Microfin Ltd., another of India’s largest MFIs.30 Public Offerings Equity investing in microfinance becomes much more accessible when MFIs are publicly traded. Only the largest and best-performing MFIs can carry out public offerings, and only in countries with functioning stock markets. Pub-lic listings by Equity Bank on the Nairobi Stock Exchange and Bank Rakyat Indonesia on the Jakarta Stock Exchange have enabled local investors to buy shares in these microfinance industry leaders. The Compartamos IPO in 2007 was the first public listing to address inter-national investors in a big way. This IPO was a watershed for all of us at ACCION, as ACCION was one of the main sellers of shares in the offering. In fact, the original motivation behind the IPO was ACCION’s need to real-ize the gains residing in its Compartamos shareholding so that it could rede-ploy those funds to new microfinance efforts. The return on investment the original investors received was approximately 100 percent compounded over eight years.31 In ACCION’s case, a $1 million investment was valued at time of sale at roughly $400 million, certainly an unexpected result and one that is highly unlikely to be repeated. The proceeds of the IPO will fuel ACCION’s investment for years to come in start-up and emerging MFIs in difficult locations such as parts of West Africa, China, and South Asia. Before the IPO, Compartamos had already entered the bond markets, as noted above. After extensive preparation, Credit Suisse arranged an IPO, attracting new equity investors to replace 30 percent of the equity of Com-partamos’s original investors. The total proceeds from this sale were $468 mil-lion, with purchases by 5,920 institutional and retail investors from Mexico, the United States, Europe, and South America. The price-to-book-value mul-tiple was 12.8, and the price-to-earnings ratio was 24.2.32 Compartamos had been previously rated by Standard & Poor’s and Fitch Ratings at MXA. The excellent rating by a mainstream rater and the arranging by a mainstream asset management company contributed to the success of the IPO. Compartamos’s two CEOs, Carlos Labarthe and Carlos Danel, known as the two Charlies, impressed potential buyers in scores of one-on-one road show presentations. After the IPO, Compartamos shares rose by another third, to a level that put the MFI’s market capitalization at over $2 billion. Share prices have since Models of Financing Inclusive Finance • 91 moved up and down with the market as a whole, falling as the market fell in late 2008, despite continued strong profitability. With the Compartamos IPO, the interest in public listings for MFIs has jumped. However, for the MFI it is costly and time-consuming. Success requires consummately transparent information, an excellent track record, a bright future, and superior management. External conditions for success include liquid and well-developed financial markets, appropriate regulatory frameworks, a stable currency, and a number of other factors. Very few envi-ronments meet all these requirements, and so the number of future MFI IPOs is likely to be low. Microfinance as a Distinct Asset Class With all these deals, has microfinance become a distinct asset class? Talk among industry analysts can become surprisingly heated about this issue. Designating microfinance as a new asset class would signify that it had truly arrived in capital markets, and proponents of this idea want to attract more mainstream investors into the industry. But can microfinance really market its strengths and weaknesses as distinct from other asset classes? And is there enough homogeneity within the microfinance industry? After all, MFIs use widely varying lending methodologies, operate in diverse countries, provide different products, and take many legal and institutional forms. One of the key issues is whether microfinance is correlated with other asset classes. Studies have shown that microfinance tends to be countercyclical, for the simple reason that the self-employed and informal sector acts as an employer of last resort. The client sector tends to become more active during downturns when the formal sector sheds jobs, or is partially disconnected from the economic cycles that affect formal businesses. As MFIs become more inte-grated into the mainstream financial system, and as global crises such as high food and energy prices affect people at all income levels, the countercyclical character of microfinance may fade.33 Given the paucity of historical and investor-quality data on microfinance, the asset class issue is still being debated. Once microfinance has gained greater liquidity and is well-understood and backed by years of data, perhaps it will make more sense to regard it as an asset class. Meanwhile, investors are cautioned to recognize that microfinance requires a more active learning and investigation process than more conventional investments. 92 • Microfinance for Bankers and Investors Conclusion Investors of many kinds have opportunities to invest in microfinance. MFIs continue to increase in size and profitability. Thanks to many of the ground-breaking transactions discussed above, MFIs increasingly understand sophis-ticated financial debt and equity instruments. There is room for more investment and more actors, and we encourage further partnerships and innovation, with the promise that efforts will not go unrewarded. ... - tailieumienphi.vn