MFI Equity: Who is Buying? Who is Selling? FOROMIC 2014 Guayaquil

Recent Investment Activity 1 7 year closed end fund that began investing in 2012 Investment Advisors: Bolivian Investment Management Ltd and Grassroots Capital Management PBC Eight investments in 4 NBFIs, 3 NGOs, and 1 institution converting into a bank USD 500,000 to USD 3,000,000; ~20% shareholding 4 USD 23 Million Equity Fund

Microfinance Institutions Fall along a Spectrum Financial + Impact Pure Financial Focus Pure Impact focus Multiple products targeting poor; Subsidy-dependent, usually NGOs Financial products only; Efficient, scaled-up operations Profit maximizing Multiple products targeting poor; Efficient operations; Profit making, but not profit maximizing businesses;

Microfinance Investors and Managers Fall on a Spectrum Financial + Impact Focus Pure Financial Focus Invest in MFIs that directly target causes and consequences of poverty with financial and non financial services Invest in MFIs that provide profitable financial services to clients

Fund structures struggle to match investor and MFI requirements StructureIssues Closed end fundsNeed to create value and exit in 5-6 years Open end fundsInvestors wary of illiquidity Mixed, open end, debt-equity funds Asset-Liability matching Holding company: consolidation / greenfields Management and control

Managers need to help match MFIs and Investors INVESTORS Investors Commercial / Mission goals DFIs Pension funds Impact first investors HNWI Local investors Fund managers need to cultivate investors that are aligned with each MFI’s character MFIs Financial first / Impact first Commercial Financial inclusion Impact first Microfinance plus MFIs need to articulate a clear and stable identity Investors need to be clear about their requirements and priorities Fund Managers

Articulating an Identity “Impact First”“Financial First” 1. Improving social products and services 1. Rapid growth to large scale 2. Metrics for managing and benchmarking 2. Efficiency; cost competitive in commodity products 3. Identify new niches of social need 3. Strong market share 4. “Hardwiring” Social Mission; Mission lock 4. Drive towards IPO