The Dutch Bank ING published its updated 2008 study on commercial bank microfinance activity, called “A Billion to Gain? The Next Phase”. A MicroCapital summary of the paper can be read here. MicroCapital is reviewing the microfinance activities of several of large international banks covered in the study, such as Morgan Stanley.
Morgan Stanley is an investment bank and the 19th largest global finance institution by market value in 2007. It has over 600 offices in 32 countries, providing investment banking, securities, and investment management services. The company also has USD 749 billion assets under management as of Q1 2008 and a 2007 net income of USD 3.2 billion.
Morgan Stanley is also the first investment bank to create a commercial microfinance-oriented business unit, the Microfinance Institutions Group (MFIG). The group includes 12 full-time specialists in London and New York. With a global focus, the group offers debt and equity funds, advisory services, and investment banking services.
The group has also recently developed an internal credit analysis and rating methodology. The system creates foreign and local currency scale ratings and aims to enable “its analysts to assess and compare risks both within the growing microfinance sector and relative to other sectors.” Morgan Stanley has also published an article detailing their methodology in their subscription-required Journal of Corporate Finance.
Prior to MFIG, Morgan Stanley has provided debt financing via the BOLD 2006 and BOLD 2007 funds. Working with Blue Orchard to service and sponsor the funds, Morgan Stanley arranged and placed the transactions with investors. Combined, the funds provide financing in 7 currencies to 33 unique microfinance institutions (MFIs) in 15 countries.
BOLD 2006-1 was the first microfinance collateralized loan obligation (CLO) arranged by an investment bank. The USD 100 million structured deal is backed by loans to 21 top-tier MFIs in 13 countries. The BOLD 2007-1 was the first rated microfinance CLO, which was rated by Standard & Poor’s. This fund supplies USD 110 million to finance 20 top-tier MFIs in 12 countries. For further details on the BOLD 2006 transaction, please see the MicroCapital coverage here.
Regarding the future, the MFIG looks to provide all of Morgan Stanley’s services to microfinance clients. The MFIG will focus particularly on principal and agency debt transactions, private equity funds for direct and indirect investments, and stimulating liquidity and mobility in microfinance equity. The group also looks to create theme-focused capital market products around water, housing, and renewable energy.
by Jennifer Lee
Additional Resources:
ING Microfinance: “A Billion to Gain? The Next Phase”, by Matthijs Boúúaert, March 2008.
Morgan Stanley: Home, 2007 10K, BOLD 2006, BOLD 2007, Credit Analysis Methodology
MicroCapital Story: “BlueOrchard Finance and Morgan Stanley Partner in $106 Million Landmark Financing Deal for Microfinance Investment”, July 12, 2006.
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