CGAP and Microfinance Investors: New Questions and Role
Microfinance Investment Intermediaries (MIIs) include a diverse range of organizations, such as specialist microfinance funds or microfinance investment vehicles (MIVs), holding companies of microfinance banks, such as the German-based Procredit, and nongovernmental organization (NGO) funds. MIVs constitute the largest group of MIIs. MIV investment levels quadrupled between 2006 and 2008, and today, according to Symbiotics and MicroRate 2011 MIV surveys, more than 100 MIVs manage total assets of around US$7 billion.
When CGAP launched its first survey of MIVs in 2005, 30 MIVs were active in the market and while foreign capital investment in microfinance was surging, reporting practices of MIVs were lagging behind international capital markets standards, making it difficult to assess their risk and return profile as well as the social orientation of individual MIVs. In order to advance transparency in the sector and develop guidelines and benchmarks for the investors’ industry, we conducted several surveys of the market and research on the MIV performance in association with Symbiotics. We also worked with leading asset managers and industry experts as well as investors’ associations such as IAMFI and CMEF to develop standards for MIV financial performance reporting and environmental, social and governance (ESG) disclosures, published in the 2010 MIV Guidelines.
On the issue of transparency, the industry has made significant progress. More than 70 specialized funds report their information based on the CGAP MIV Guidelines. The Social Investors Working Group was created to advance transparency on social performance in microfinance investments. The Client Protection Principles (CPP) is well integrated within the MIV investment processes. Additionally, LuxFLAG and MicroRate created LUMINIS Microfinance, an MIV information service intended to allow investors to make better-informed investment decisions based on a comprehensive database of MIV performance metrics.
With the various initiatives, platforms and data available on MIV financial and social performance, CGAP has taken a step back to reflect on its role in promoting transparency among MIVs. Today, we celebrate the actors actively engaged in transparency – Symbiotics and MicroRate for example. But we must also acknowledge that our own role in data transparency needs to evolve. This year, we decided not to conduct another MIV survey. The results of the 2011 Symbiotics (70 respondents) and MicroRate (80 respondents) MIV surveys confirm that these organizations are well equipped to conduct this valuable work for the industry.
However, as a public good advancing financial inclusion, CGAP’s involvement with investors is far from over.
Today, the industry is increasingly recognizing that financial services are far broader than credit and new delivery channels may or may not engage MFIs. In this new emerging world, where does investment fit? What kind of capital is needed to support delivery models that will extend financial services to the poor and, fundamentally, how can cross-border investment support the responsible delivery of financial services? Clearly, there are still many unanswered questions and these require attention.
Two issues CGAP might need to research or is maybe already able to answer:-
1. Is local (and diversified) Ownership important for regulated financial institutions to incorporate the commitment of “Financial Inclusion”? and
2. Are MII/MIVs demanding Returns on Investment that stimulate the local market-oriented process of building sustained inclusive financial sectors with sound financial institutions and with clients that understand this market-oriented approach?
Cheers, Peter van Dijk, BSD City, Indonesia