by the MicroCapital Team -

MICROFINANCE PAPER WRAP-UP: Shedding Light on Microfinance Equity Valuation, by Nicholas P. O’Donohoe, Frederic Rozeira de Mariz, Elizabeth Littlefield, Xavier Reille, and Christoph Kneiding, Part II of II

The Consultative Group to Assist the Poor (CGAP), a policy and research center housed at the World Bank dedicated to advancing financial access to the world’s underprivileged, released a path breaking 40-page report in February 2009 entitled, “Shedding Light on Microfinance Equity Valuation – Past and Present,” produced with limited analytical support from banking firm JPMorgan Chase & Co. The white paper is notable in providing an empirically grounded analysis of how financial valuation methods are actually applied by external actors to MFIs and other lending institutions with poverty alleviation goals. This is made possible by CGAP’s collection of information on 144 private equity transactions, the largest such dataset gathered to date, as well as information on 10 MFIs and other low income focused lenders that have raised funds through the issuance of securities. The original report is available at: http://www2.cgap.org/gm/document-1.9.9021/OP14v3.pdf.

by Yanni Hao -

MICROCAPITAL STORY: The Consultative Group to Assist the Poor (CGAP) with Support from JP Morgan Chase & Co. Releases Empirically Based Study of Valuation Models Used in Microfinance Equity Investments

The Consultative Group to Assist the Poor (CGAP), a policy and research center housed at the World Bank dedicated to advancing financial access to the world’s poor, has released a path breaking report in February 2009 entitled, “Shedding Light on Microfinance Equity Valuation: Past and Present,” produced with limited analytical support from banking firm JPMorgan Chase & Co. The white paper is notable in providing an empirically grounded analysis of how financial valuation methods are actually applied by external actors to MFIs and other lending institutions with poverty alleviation goals. This is made possible by CGAP’s collection of information on 144 private equity transactions, the largest such dataset gathered to date, as well as information on 10 MFIs and other low income focused lenders that have raised funds through the issuance of securities. The original report is available at:

http://www2.cgap.org/gm/document-1.9.9021/OP14v3.pdf

by Yanni Hao -

MICROFINANCE PAPER WRAP-UP: Microfinance: Ready For its Big Leap? By John Engen

The cover story of the February, 2009 issue of US Banker was entitled, “Microfinance: Ready for its Big Leap?” In it, author John Engen lays out his expectations that a hybrid funding approach will arrive in microfinance sector – one that meshes government, non-profit, and business ethos in pursuit of a “double bottom line” that measures success both with respect to social benefits and financial returns. However, Mr. Engen argues that to attract more funding from private investors, MFIs need further adjustments in both their business practices and ideologies. While such adjustments may be controversial and draw criticism at present, in the long term the changes should induce competition in the sector, and so the theory goes, be beneficial. The real question then is: are MFIs ready for such a big leap? The full text is available at:  

http://www.americanbanker.com/usb_article.html?id=20090126JLCSNV6Y&pagenum=1&numpages=3

by Jeffrey Erfe -

MICROCAPITAL EXCERPT: “The Battle for the Soul of Microfinance,” by Financial Times Senior Columnist Tim Harford

What follows is an excerpt from Tim Harford’s piece “The Battle for the Soul of Microfinance,” which appeared in the Financial Times’ Weekend Reportage section on December 6, 2008.  Mr. Harford, a Senior Columnist at the Financial Times, has written an excellent introduction to the competing commerical and altruistic motivations behind microfinance–and the current disputes they have generated–that have come to dominate so much of the industry today.  The full piece also cites several interesting studies whose findings may affect microfinance institutions’ (MFIs) procedures for vetting micro-loan applicants or their manipulation of interest rates resulting from either profit-driven or philanthropic motives.  The full article is available online to those who have registered for free with the Financial Times.

by Jeffrey Erfe -

PIONEERS IN MICROFINANCE: Six Pioneers in Latin America: Álvaro Dávila of Colombia, Joseph Blatchford of the USA, Theodore C. Ning, Jr. of the USA, Mercedes Canalda de Beras-Goico of the Dominican Republic, Clara Serra de Akerman of Colombia, and José Ignacio Avalos Hernánde of Mexico

Microcapital has identified the following six microfinance “pioneers,” individuals who have made long-standing contributions to the evolution and promotion of microfinance practices and/or technology. While not all of these pioneers hail from Latin America, all have been instrumental to the development of microfinance in that region. These pioneers are: Álvaro Dávila of Colombia, Joseph Blatchford of the USA, Theodore C. Ning, Jr. of the USA, Mercedes Canalda de Beras-Goico of the Dominican Republic, Clara Serra de Akerman of Colombia, and José Ignacio Avalos Hernánde of Mexico. Below are short descriptons of the contributions of each:

by Iyanna Holmes -

MICROCAPITAL STORY: SKS Microfinance Raises $75.4m in Equity Capital in Transaction Led by Sandstone Capital

SKS Microfinance Pvt. Ltd. has announced the closing of a fourth round of equity financing in which it raised Rs 366 crore, approximately USD 75.4 million.  The transaction was led by Sandstone Capital, a U.S. hedge fund based in Boston, MA.  Also participating in the transaction were existing investors Kismet Capital and SVB India Capital Partners, an affiliate of Silicon Valley Bank.  Edelweiss Capital was the investment banker to the issue.

by Greg Casey -

MICROCAPITAL STORY: Mexican Billionaire Carlos Slim Donates $5m and Guarantees $40m for a New Mexican Microfinance Institution, Grameen Carso, Run by the Grameen Trust of Bangladesh

The Grameen Trust of Bangladesh, a member of the Grameen Family that helps build new microfinance institutions (MFIs) around the world, plans to open a new MFI in Mexico. Fundacion Carlos Slim, the charitable organization of Mexican billionaire Carlos Slim, will provide an initial donation of USD 5m and guarantee another USD 40m in loans, which will create the total capital base for the new MFI. The new MFI will be modeled after the Grameen Bank. It will be a non-profit using the ‘social business‘ model, which implies that it will reinvest all profits back into the operation of the company. The new MFI, which will initially target 80,000 borrowers, will be named Grameen Carso after the Mr. Slim’s business conglomerate, Grupo Carso. The company will initially be managed by the Grameen Trust, but eventually they hope to turn the company over to Mexican operators.

by Greg Casey -

WHO’S WHO IN MICROFINANCE: SNS Asset Management

SNS Asset Management is a subsidiary of SNS REAAL, the fifth largest financial institution in the Netherlands. The asset management division was founded in 1997 after the merger of SNS bank and De Hollandse Koopmansbank. The firm, which is a participant in the United Nation’s Principles for Responsible Investing initiative (PRI), currently has EUR 19b in assets under management.

by Greg Casey -

MICROCAPITAL STORY: Philip Vassiliou of Legatum Capital Publishes Editorial Supporting For-Profit Microfinance in The Economic Times

In a recent Economic Times editorial, Philip Vassiliou, managing director of Legatum Capital, an international investment firm, argues that, “to reach its full potential, the microfinance sector must embrace free market principles of competitive pricing and commercial incentives.” He also believes that “modifying these incentives, however noble the intention, will only damage the natural development of the sector.” His comments come at a time of fierce debate over the benefits of commercial microfinance.

by Greg Casey -

MICROFINANCE PAPER WRAP-UP: An Investigation of Economies of Scale in Microfinance Institutions, by Joshua Zacharias

Written by Joshua Zacharias, Glucksman Institute for Research in Securities Markets at The Leonard N. Stern School of Business, New York University, Faculty Advisor: David Backus, April 16, 2008, available at: http://archive.nyu.edu/handle/2451/25936.

‘Economies of scale’ refers to increased efficiency (lower average costs per unit produced) experienced by firms as they increase the overall size (total units produced) of their operations. For financial institutions, this measurement measures cost savings realized from increasing the size of its loan portfolio in terms of both number of loans and overall value of loan portfolios.