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Equity

Faculty:

Burand/Smith

Language

English

Programs:

Boulder MFT

Description

Building an Investment-Ready Microfinance Institution: Working with Equity Investors

This course will discuss how MFIs can attract and work with equity investors who provide risk capital in return for a share of ownership. Using real life examples, the course will track the process an MFI would follow, from the first stage when the MFI begins to explore the possibility of attracting equity investors, through the negotiation of an advantageous shareholder agreement and on to living with and managing shareholders over time.

Drawing on actual cases, much of the class will be based around key documents used in the equity investment process, such as investment proposals, term sheets and shareholders agreements. These documents are intended to become reference tools for students to use in their own work.

Questions to be examined include:

  • What should a microfinance institution know before it begins to negotiate with equity investors?
  • What should a microfinance institution expect to discuss when negotiating an equity offering?
  • What tax considerations must MFIs be aware of?
  • Can lenders become equity investors?
  • What are the likely equity investor demands on the governance structure of the microfinance institution?
  • What exit strategies are equity investors likely to pursue?
  • How can conflict among shareholders be resolved?

Outline

I. Introduction

  • A. Introduce participants, faculty and the course
  • B. What’s so special about equity?

II. Preparing for an Equity Offering

  • A. Who are the equity investors in microfinance today and what are they looking for? (data from Council of Microfinance Equity Funds study and other sources)
  • B. Preparing the MFI
    1. Is the MFI an attractive investment?
    2. Investigating legal and tax issues
    3. Identifying desired shareholders and ownership structure
    4. Making the initial contacts

III. Negotiating an Equity Offering

  • A. Due diligence and understanding the investor’s decision making process
  • B. Negotiating a shareholders agreement (role play; and introduce annotated shareholders agreement), with a close look at provisions covering:
    • Risk management
    • Control, governance, and special types of shareholders
    • Valuation and expected returns
    • Exit and ownership evolution
  • C. Quasi-equity instruments

IV. Managing Shareholders

  • A. Shareholders in governance
  • B. Managing conflict resolution among shareholders
  • C. Raising additional equity for growth or emergencies
  • D. Implementing exit strategies

V. Wrap-up and review tools that have been developed to assist MFIs in securing equity investments