Reaching $1bn: One Micro Investment at a Time
Microfinance is coming of age, as expertise turns a niche market into a profitable asset in many portfolios.
Tiny investments, by Wall Street standards, reach the billion dollar disbursement mark: One micro investment at a time.
“What is truly remarkable is that by indirectly lending to a yurt maker in Mongolia or a bike repairman in Tanzania, we have demonstrated that they are amongst the best borrowers in the world,” said Bo Cutter, Chairman of MicroVest. The company has proven that financing low income populations and fostering financial inclusion can be done in a profitable manner, with long term benefits to both investors and local communities.
Growth of Emerging Market Microinvesting
According to a paper from the Inter-American Investment Bank, although the commercial development of microfinance is still in its infancy, it is beginning to shift from the nonprofit world to private investors. They note that micro-enterprises are found in all fields of economic activity — commerce, agriculture, manufacturing, and services — but they are most prominent in the retail trade and service sectors. However, growth will ultimately depend on continued policy reform, standardization and transparency of information on lending institutions, and the industry’s capacity to innovate and increase efficiency in order to serve the lowest end of the market.
A leader in the field, MicroVest Capital Management provides the due diligence, along with the expertise in emerging markets to manage that risk. By doing so, they are helping to provide market stability to economies that face challenges that lead to political unrest. The company achieved their current milestone — $1 billion in disbursements — primarily by lending to financial intermediaries in developing countries, while also making some equity investments. Their core business is investing in socially responsible financial institutions in emerging markets, while growing operations and foot print in impact investing. Founded in 2003, MicroVest seeks investments in under-banked markets that provide access to financial services for rising middle class communities around the world. They have developed expertise in providing risk adjusted financial returns for investors — not despite their social lens — but because of it. They believe that financial institutions that invest in the real economy and treat their clients with respect will outperform.
“We are very excited to have crossed the $1 billion threshold, something we feel clearly exemplifies the successful and sustainable character of our business. I would like to thank all our investors, partners, dedicated employees and Board Members that supported us throughout this journey, without whom it would have not been possible.” says Gil Crawford, CEO of MicroVest Capital Management, LLC.
He went on to add that the company manages a family of funds that seek to provide private capital to financial institutions that in turn make loans to entrepreneurs in developing communities. As of September 2016, the institutions of their portfolio served close to 13 million micro, small and medium size businesses and individuals.
Low-income financial institutions (LIFIs)
The term ‘microfinance’ is increasingly used to refer to an array of financial products, including credits, savings, and insurance, tailored to meet the needs of low-income individuals, particularly women. Microfinance institutions (MFIs) provide these services and include a variety of organizational types: non-government organizations (NGOs), cooperatives, credit unions, and commercial banks. Following is an outline of MicroVest’s focus in the LiFi sector.
- SME Finance — Banks
Small and medium enterprises (SMEs), often described as too large for microfinance but too small for corporate banking, represent an important economic sector in any country. Although an engine of development and an indicator of a thriving economy, SMEs in emerging markets have traditionally lacked access to capital. This impacts their ability to grow, providing jobs and revenues for emerging economies.
- SME Finance — Factoring
Factoring, the transaction of a business selling its receivables at a discount in return for immediate capital, is critical for small businesses. For example, a small company that provides employee uniforms may need to manage a 75 day difference between needing to purchase materials and collecting on a sale. Local banks will not provide a line of credit or revolving loan, leaving the company with insufficient cash flow to pay employees and bills that keep the business running. Typically, the buyer is a larger company with a better credit rating, which allows the seller to secure needed funding before the receivable is due.
- Full Service Banks
Full service banks, recognizing the growth potential of underserved populations, are assuming an increasing role in the microfinance and SME markets. These banks can offer financial stability, widespread network branches, and specialized services such as remittances payments, foreign exchange and specialized lending products.
About MicroVest Capital Management, LLC
MicroVest is an asset management firm that offers global investment opportunities in emerging markets assets. The company invests capital in under-banked markets, providing access to a growing portfolio of sustainable financial institutions. MicroVest’s emphasis on detailed due diligence process and focus on aligning values can result in meaningful financial returns for its investors. Since 2003 MicroVest has demonstrated that investing in its funds can be both, financially sustainable and purposeful. As of March 2017, MicroVest managed $392 million across all its funds.