MICROCAPITAL STORY: MicroCred Receives Capital Increase from Developing World Markets and AXA Belgium

MicroCred, an investment company that creates companies and banks specialized in microfinance, approved a capital increase which includes investments from a new shareholder, Developing World Markets (DWM) and a founding shareholder, AXA Belgium. DWM will take a 22% stake in the company, while AXA Belgium will increase its shareholding to 25%. MicroCred’s total equity capital stood at USD 23.2 million at the end of November 2008.

The funding that MicroCred recieves comes from private donors, private indviduals, development agencies, and institutional investors through equity and loans close to or at market conditions and in turn supports and creates microfinance institutions (MFIs). These MFIs mostly consist of Greenfield microfinance companies but depending on countries and contexts, MicroCred also invests in former NGOs that have been transformed or already existing companies. MFIs that belong to the MicroCred Group are either commercial companies or banks. MicroCred has thus far created MFIs in the following countries:

Mexico: MicroCred Mexico was created in February of 2006 and operates 6 branches with over 6,400 borrowers and an active loan portfolio of USD 2.8 million.

China: MicroCred Nanchong was created in February of 2006 and operates 1 branch with over 719 borrowers and an active loan portfolio of USD 1.6 million.

Madagascar: MicroCred Madagascar was created in December of 2006 and operates 5 branches with over 7,700 borrowers and an active loan portfolio of USD 6.7 million.

Sénégal: MicroCred Sénégal was created in September of 2007 and operates 1 branch with over 1,609 borrowers and an active loan portfolio of USD 1.4 million.

The founder of MicroCred, PlaNet Finance, is very diversified within the microfinance community with five other organizations. PlaNIS offers advisory services in debt management and private equity and also advises and structures financial vehicles in microfinance, PlaNet Finance Advisory Services is a technical assistance and consulting provider, Planet Rating is a microfinance rating agency, PlaNet Guarantee is a microinsurance specialist, and FinanCités is a venture capital company for microentrepreneurs in French deprived urban areas.

MicroCred and it’s investors will benefit from PlaNIS’s new local currency risk mitigation fund, MICROFIX. The fund will be working with Microfinance institutions and international investors to understand, quantify and reduce currency risk by providing currency hedging services as well as risk management solutions. MICROFIX was created in partnership between PlaNIS and Coporate Connect and is backed by technical assistance from BNP Paribas , FMO and The Currency Exchange Fund (TCX) (the local currency capital markets development fund). It is designed to assume segregated currency exposures from transactions originated by its participants, which enables them to directly transact in local currencies in emerging and sub-emerging markets. By Investing in MICROFIX, Microfinance organizations will get access to Local Currency hedging with a leverage averaging of a maximum of 10 times on the equity invested. Corporate Connect and PlaNIS target capitalization with USD $ 70 million, providing a risk mitigation capacity of $ 350 mln. PlaNIS will be the Manager of the Fund. Corporate Connect will act as service provider to the Fund Manager during the term of the Fund.

TCX explains that borrowers in emerging markets must often choose between two equally risky and unattractive alternatives for long-term funding. Either they fund long-term assets with short-term liabilities in local currency, or they search for long-term, hard currency debt from international investors. Both options create a financial mismatch that often results in unforeseen costs and overcapitalization, and borrowers are frequently forced to bear undesired risks that affect their projects adversely. These less than ideal options are the reason for TCX and MICROFIX coming into existence, and organizations like MicroCred that provide the means for investors to invest at the MFI level without risking their exposure.

Developing World Markets is a fund manager and investment bank created in 1994 with the goal to use the capital markets for sustainable development and to support microfinance institutions. DWM has disbursed over USD350 million into banks and non-bank financial institutions specialized in microfinance representing more than 20 countries from Asia, Africa and Europe.

MicroCred’s founders also include partner investors International Finance Corporation, Société Générale and Axa Belgium; Later joined by the French Development Agency (AFD) and the European Investment Bank in 2007.

Scott Everett, Research Assistant

Addiional Resources:

TheMIXMarket: Home, MICROFIX.
RISKMARKETS: Home, TCX.