Original Posting: Luxembourg Microfinance and Development Fund
I recently attended the morning Master Class session of the Boulder Microfinance Training in Turin. Activities during that morning were overshadowed by the sudden and tragic death of one of our colleagues from Oikocredit the day before. Our thoughts and condolences go out to her family, friends and colleagues in Peru.
The session was about a dialogue between investors and microfinance practitioners, regulators, TA providers and other actors. Despite the tragic events, the debate was lively. Obviously there is a need to ask questions to and challenge the investor community. The main themes were:
Risk appetite / role of investors in difficult moments
A number of MFIs are facings difficulties, particularly in commodity exporting countries. Their question was: Who steps in from the investor community when everybody is running for the exit? A question for which I didn’t have an answer apart that counter-cyclical actions to stabilize the financial sector is normally within the realm of the public and might be very difficult to sell to private MIV investors.
Learning from mistakes
Over-indebtedness was an underlying concern throughout the debate, both from the podium and in the audience. At the same time there was the feeling that we ultimately all run after the same small group of clients. In the case of investors behind the “leading” MFIs – Tier 1 institutions mainly – and these MFIs behind a relatively small group of urban, attractive clients.
MIVs are expensive, particularly in local currency
Participants from Africa highlighted that MFIs are expensive, particularly compared to local sources of local currency financing. The hedging solutions offered by TCX and MFX were perceived as often out of the market.
How to select your investors: Governance matters
In the debate, reference was made several times to the importance of good governance of institutions. This includes who an MFI would like to have as funding partners both for debt and equity financing. Still knowledge and understanding of investors is fairly basic. MFIs and investors may have to discuss more outside the usual “deal” framework.
Underlying the discussion was a feeling from some of the participants that investors had lost their attachment to financial inclusion, things were better in the past and that investors are heading for obsolescence in 20 years’ time.
Yet offering of financing products for MFIs has probably never been as plentiful and diverse as today and MIVs have played a key role in bringing the sector to where it is today. The logic is that of a partnership, so if MIVs have lost their souls, MFIs must surely have gone the same way.
But relevance is a key question. If funding from foreign MIVs is replaced by savings deposit and local capital markets, this is a positive for development. But MIVs need to find something else to do. Whether we will have 20 years or less needs to be seen.
Enjoy your summer,