Una Gallagher Pulizzi
upulizzi@cgap.org
+1-202-473-8869

September 17, 2009. Washington, DC—Specialized microfinance investment funds continued to see growth in assets under management and strong returns in 2008, defying the impact of the global financial crisis. According to a new CGAP paper, fund managers reveal significant efforts on the part of microfinance investment funds to include environment, social, and governance (ESG) considerations in their investment policies, due diligence, and monitoring.

At the end of 2008, microfinance investment vehicles (MIVs) managed more than half the US$10 billion in cross-border foreign capital investments in microfinance and their ranks continued to grow last year according to the third annual MIV survey by CGAP and research firm Symbiotics.

There are now 103 MIVs with an estimated US$6.6 billion under management globally, up from 91 MIVs with US$5.4 billion under management at the end of 2007. Eighty funds representing 93 percent of total MIV assets under management responded to the CGAP survey, providing a detailed snapshot of their size, performance, goals, and policies.

Among the MIVs surveyed, assets under management grew 31 percent in 2008. While this growth rate has slowed significantly from the 72 percent experienced in 2007, it is still impressive given the 20 percent slide in emerging markets in 2008. Even during the first half of 2009, MIVs continued to see 16 percent growth in assets under management, and asset managers reported few fund redemptions despite the continuing crisis in credit markets.

“Microfinance funds grew in 2008 in sharp contrast to the steep sell-off of emerging market funds last year,” said Xavier Reille, CGAP manager and co-author of the paper. “In 2008, 11 new funds were created, attracting investors interested in sound financial returns and positive social outcomes.

This growth in MIV assets was backed by both private and public investors, with institutional investors accounting for 42 percent of MIV assets under management at the end of 2008.

Perhaps the most surprising finding of the survey, outside its growth during the crisis, was the number of MIVs reporting on ESG issues, based on the Principles for Responsible Investment developed by a United Nations-convened investor group. This was the first time ESG indicators were included in CGAP’s survey. And the results suggest many MIVs are focusing on both financial and social returns—the so-called “double bottom line.”

”We found that over 60 percent of participating MIVs report ESG information to their investors, and 65 percent have staff trained in these issues,” says Reille. “Additionally, 63 percent of MIVs have also committed to the Client Protection Principles developed by CGAP and ACCION’s Center for Financial Inclusion. We found a very strong commitment to social performance from those surveyed.”

Despite their resilience, MIV performance is likely to deteriorate slightly during 2009 as the result of changing market conditions. MFI credit risk is increasing significantly, with portfolio-at-risk showing a sharp rise in the first half of 2009.

MIVs are responding to market conditions by slowing down their growth and tightening their investment monitoring. They are also improving their risk management systems and partnering with public investors to support distressed MFIs. Though MIVs will likely continue to grow at double-digit rates, we expect returns will fall below 3.5 percent in 2009.

CGAP (Consultative Group to Assist the Poor) is a research and policy resource center whose mission is to promote access by low-income persons to financial services. It is funded by more than 30 development agencies and private foundations that share the common mission of poverty reduction. Housed in the World Bank, CGAP provides industry-related information, promotes standards, develops innovative solutions, and offers advisory services to governments, financial service providers, donors, and investors. For additional information, visit www.cgap.org.