Microfinance

Vlerick Management School

Ghent, November, 6th, 2013

1

Loïc De Cannière, CEO Incofin IM

Content

• Microfinance: what is it?

• Microfinance investment funds

• Short presentation of Incofin IM and funds

→ Microfinance is the provision of a broad range of financial services to micro-entrepreneurs

→ The origin of Microfinance can be traced back to the ‘70s and has since then grown into a socially and economically successful business

What is microfinance ?

Two basic credit methodologies: - Group lending - Individual lending

A tremendous growth

→ From 13 million clients in 1997 to 205 million clients in 2010

→ Total size of the MF industry: 45-60 billion USD

→ Majority of loans are smaller than 1,000 USD

→ 84% women

→ Shift from “poverty alleviation” to “financial inclusion”

Regional differences

Distribution of GLP per Region

Source: calculations based on The Mix (data 2012)

Regional differences

Bank NBFI NGO

Savings

Debt

Equity

Funding Donation Semi-Commercial

Commercial

Lifecycle of a MFI

Microfinance Institutions

Example of a MFI: KWFT (Kenya): a licensed deposit taking MFI

# Clients 600,000

Loan portfolio 11.2 bn KSH

(135 m USD)

# branches 221

# staff 2,300

ROE 15%

Béatrice: a micro-entrepreneur, client of Unguka Bank (Rwanda)

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Access to

elementary

services

(savings)

Stabilization of

income by

development

of micro-

economic

activities

Diversification

of income by

acquiring

assets. Access

to social

networks

Increasing

propensity to

take risks

Investments in

health and

education

Acces to

formal

economic

activities

Social Impact Microfinance

Evolution of poor households Vulnerability Growth

Content

• Microfinance: what is it?

• Microfinance investment funds

• Short presentation of Incofin IM and funds

Microfinance investment funds

→ Microfinance Investment Vehicles (MIVs) include Mutual Funds, Structured Vehicles, Equity Funds, Co-operatives, ..

→ 100+ MIVs

→ 80% of all MIVs are domicilied in Luxembourg

→ Fund managers concentrated in Switzerland, Netherlands, US, Germany, Belgium (10 fund managers represent 90% of assets).

→ Most MF fund managers will have to comply with AIFM Directive

→ Investors include institutional, HNWI, retail and DFIs

→ Fund volume expected to reach 10 bn USD in 2012

Investment value chain of microfinance

Investment value chain of microfinance

MILLIONS OF MICRO-ENTREPRENEURS

MICROFINANCE INSTITUTIONS

Micro credits

MF INVESTMENT FUNDS Assets under Management

Investments Debts + Equity

SOCIALLY MOTIVATED INVESTORS

Shares / Notes

Finan

cial & so

cial return

Who is investing in MIVs?

What is the ROE of underlying MFIs?

Interest rate components

Cost of Loan

For Client

20-40%

Operating Expenses

MFI

8-20%

30%

25%

20%

15%

10%

5%

0%

Provisions 2-3% Profit

Margin 3-4% Country

Insurance 0.5-1.0%

FX Hedging 1.0-1.5%

Custodian + audit

0.3%

M’gt Fee

1.5-1.75% Return to Investor

3-5%

Microcredit Client Microfinance institution Microfinance fund + investor

Content

• Microfinance: what is it?

• Microfinance investment funds

• Short presentation of Incofin IM and funds

Incofin Investment Management

agRIF

TBD

Volksvermogen (2004,15M USD)

VDK (2007, 100M USD)

BIO (2012, 15M USD)

Incofin Investment Management

~500M USD

Retail funds

50M USD Managed Accounts 130M USD Institutional Funds 320M USD

Incofin cvso

(2001)

50M USD

Rural

Impulse

Fund I

(2007)

38M USD

Rural

Impulse

Fund II

(2010)

160M USD

Fairtrade

Access

Fund

(2012)

25M USD

Impulse

(2004)

60M USD

FPM

(2013)

40M USD

• Leader in rural and agricultural impact investing, strong presence in microfinance and pioneering

initiative in Fairtrade

• Our mission: Our mission is to invest in companies that increase financial inclusion, in order to

generate developmental impact, while generating an attractive return to our investors.

• Head Office located in Antwerp, Belgium; four regional offices based in Bogota, Colombia; Chennai,

India; Nairobi, Kenya and Phnom Penh, Cambodia

Incofin Investment Management

Parameter Number

# MFIs in portfolio 112

# Equity stakes in MFIs 28

# Ultimate MFI clients 10.5 million

% of women 63%

% of farmers 24%

Wide geographic coverage

Incofin has investments in 43 countries worldwide

Region % Countries

Latin America and Caribbean

35% Argentina - Bolivia - Colombia - Ecuador - El Salvador - Guatemala - Haití - Honduras - México - Nicaragua - Panamá - Paraguay - Perú

Central/Eastern Europe/NIS

35% Armenia - Azerbaijan - Belarus - Bosnia and Herzegovina - Georgia - Kazakhstan - Kyrgyzstan - Mongolia - Russia – Tajikistan - Uzbekistan

Asia 18% Cambodia – East Timor - India - Indonesia - Jordan – Pakistan - Philippines

Africa 12% Angola - Burkina Faso - Congo, DRC - Ghana - Kenya - Morocco - Namibia - Nigeria - Rwanda – Uganda - Tanzania - Zambia

MEXICO

UNITED

KINGDOM

FRANCE

VENEZUELA CENTRAL

AFRICAN

REPUBLIC

DEMOCRATIC

REPUBLIC

OF CONGO

ALGERIA LIBYA EGYPT

NIGER MALI

CHAD

SUDAN

ERITREA

SOMALIA

TUNISIA

MAURITANIA

WESTERN

SAHARA

SENE

GAL

GUINEA

LIBERIA

NAMIBIA

ZIMBABWE

ANGOLA

ZAMBIA

BOTSWANA

SOUTH AFRICA

UGANDA

KENYA

TANZANIA

CONOGO

CABON

CAMEROON

NIGERIA

BURKINA

FASO

SAUDI

ARABIA

YEMEN

OMAN

IRAQ IRAN

SYRIA

TURKEY

PAKISTAN

AFGHANISTAN

INDIA

TURKMENISTAN

UZBEKISTAN

KAZAKHSTAN

C H I N A

MONGOLIA

I N D O N E S I A

BHUT

AN

BANGLADESH

MYANMAR

SRI LANKA COLOMBIA

GUYANA

SURINAME

FRENCHGUIANA

ECUADOR

PERU

BOLIVIA

BRAZIL

PARAGUAY

ARGENTINA CHILE

URUGUAY

BELIZEA

HONDURAS

NICARAGUA

GUATEMALA

SALVADOR

COSTA RICA

PANAMA

JAM.

HAITI

DOM. CUBA

BAHAMAS

G.B.

SIERRA L. LVORY

COAST

TOGO

BENIN

LES.

SWA.

MADAGASCAR

MOZAMBIQUE

MALAWI

RW.

BU.

JORDAN ISRAEL

CYP.

GREECE

ITALY

A.

M.

BUL.

S

. BOS.

ROMANIA

HUN.

AUS.

SWI. M.

UKRAINE

POLAND

BELARUS

GERMANY BEL.

HOL.

LIT.

LAT.

EST.

FINLAND SWEDEN

NORWAY

DENMARK

RUSSIA

N.KOREA

S.KOREA

JAPAN

TAIWAN

LAOS

THAILAND

CAMB.

VIETNAM

MALAYSIA BR.

PAPUA

NEW-GUINEA

KUWAIT

ETHIOPIA

QATAR

UAE

MOROCCO

SPAIN

Note: Portfolio July 2013

Investments in debt and in equity

Breakdown current portfolio per instrument

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78% of transaction value in loans;

22% in (quasi)equity

Equity/loan balance varies by funds; some

funds more equity or debt focused

Fund % loans % (quasi) equity

Incofin CVSO 63% 37%

Volksvermogen 66% 34%

Impulse 67% 33%

VDK 100% 0%

RIF I 73% 27%

RIF II 55%* 45%*

* Target investment fund

A double bottom line investment strategy

• Incofin IM developed and is using proprietary investment analysis tools

Counterparty Risk Score Tool, CRS

Social and Environmental Performance Measurement Tool, ECHOS©

• Social score being an equally important factor in the investment decision as financial score

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Financial Risk Analysis

Social / Environmental Risk Analysis

• Country risk

• Ownership and governance

• Products and services

• Operations and control

• Loan portfolio

• Financial performance

• Asset/liability management

• Future development prospects

• Social mission management

• Outreach and access

• Quality of customer services and respect of Client Protection Principles

• Human resources

• Environment, corporate social responsibility and impact

1 2

True double bottom line approach

Strong financial track record In

co

fin

CV

SO

fu

nd

Imp

uls

e f

un

d

Dividends distributed 2006 2007 2008 2009 2010 2011 2012

Impulse 3,0% 3,0% 3,0% 0,0% 2,5% 3,0% 3,0%

Dividends distributed 2007 2008 2009 2010 2011 2012

Incofin CVSO 1,0% 1,5% 2,0% 2,5% 2,5% 2,5%

RIF I

I

RIF I

IRR to

date:

14,5%

NAV increase

since 12/10:

22,4%

26

International set investors, both DFIs and Institutional investors

27

Questions?

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