Investing in Inclusive Finance

Microfinance is rapidly attracting large volumes of private capital for institutions serving low-income consumers. Yet the ability of microfinance institutions (MFIs) to absorb and deploy these investments is rising only gradually. To reach the goal of developing commercially sustainable MFIs – and of mainstreaming microfinance into the banking sectors of poor countries – there is a critical need to establish norms and best practices for investors and prepare MFIs for investment.

Through its Investing in Inclusive Finance program, the Center explores the challenges and opportunities associated with the intersection of microfinance and commercial investment. These areas include strengthening microfinance fund management; creating instruments that foster healthy local capital markets; assisting MFIs with transformation strategies; and building capacity and support for MFIs to qualify for commercial investment and to work effectively with investors. The Center seeks solutions that address the needs of both investors and MFIs and draw on the collective expertise of ACCION staff and private sector players.

Projects & Activities

The Council of Microfinance Equity Funds (CMEF)

The Council of Microfinance Equity Funds (CMEF) is a group of more than 20 of the leading private funds that make equity investments in MFIs. The Center for Financial Inclusion provides the secretariat for the Council. The Council has established itself as the key forum in which fund managers can convene to develop the norms for their emerging field and advance shared understanding of how the field should evolve. Projects in 2009 include collaboration on the next "Microfinance Banana Skins" survey; a comprehensive compensation study, in collaboration with Mercer Consulting, conducted for private equity funds investing in microfinance, and an examination of the effects that the downturn in the global economy has had on the capitalization of MFIs. Most of the Center’s investor-related work is conducted under the aegis of CMEF. www.cmef.com

Microfinance Cracking the Capital Markets Conferences

The Microfinance Cracking Capital Markets Conferences convene a wide range of finance professionals, particularly mainstream investors, to share and learn about the successes, challenges and trends in microfinance investment. These conferences, co-sponsored by ACCION and supported by the Center, showcase the newest developments, deals and players in the microfinance industry on topics such as exit strategies, valuation, governance, social performance measurements and compliance. As a result, these events mobilize tremendous private sector interest. Two recent conferences – one in New York and a South Asia conference in Delhi – brought together more than 500 interested investors, bankers, regulators and practitioners. To learn more, please select from one of the following conference links:

Microfinance Cracking the Capital Markets III > 

Microfinance Cracking the Capital Markets – South Asia >

Transformation

Microfinance non-governmental organizations (NGOs) often choose to transform into regulated financial institutions because it is one of the most effective strategies for significantly scaling up their ability to offer a wider range of services (including deposits), access commercial sources of capital, improve operational efficiency – and ultimately reach more low-income consumers. In going through this process, institutions face similar challenges – such as how best to understand licensing requirements, gain management buy in, shift to a for-profit mindset while maintaining a social bottom line, diversify their products, market themselves in a more competitive environment and scale up their staff's skills.

The Center seeks to support NGOs in their transformation efforts, strengthen NGO governance and share knowledge of best practices and priorities on the above challenges through workshops, papers, conferences and trainings. The Center leverages ACCION's thought leadership and experience in this capacity and the outcomes achieved both through successful transformations of established MFIs (BancoSol in Bolivia, Uganda Microfinance Limited) and workshops most recently in Morocco, Bulgaria, Vietnam and India.

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Investment Readiness

As microfinance institutions seek to gain scale and extend outreach, an increasing number of them require access to broader, commercial sources of funding. These MFIs may have some experience in accessing the capital markets, but struggle with transitioning from donor to commercial capital, and with navigating the inherent challenges. Issues include how best for MFIs to represent themselves before prospective investors, manage investor relations, build back office capacity to manage liability, and evaluate, structure and close financings (debt or equity) that are appropriate to funding needs and business goals. This process raises key questions – how can industry advisors and collaborators support the evolving funding needs of MFIs and build their capacity to secure and manage commercial funding? How best can we develop and disseminate high-quality tools and training throughout the microfinance industry to meet the needs identified above?

The Center's Investment Readiness project focuses on building the capacity of NGOs to secure and properly manage debt and equity investment, disseminate best practices for the industry and provide industry leadership.

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