apm microfinance webinar - c-quadrat

APM Microfinance Webinar

„Microfinance Investment Insights“

Arman Vardanyan, Fund Manager

Microfinance works

• 80 % of all businesses in developing countries owe their existence to

microcredits

• In the last 40 years approx. half a billion people have used microcredits

Source:

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• Microfinance market update

• Behind the scenes - microfinance investment insights

• Social impact news

Overview

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The Market: Loan portfolio growth

Steady growth of MFIs

4

Source: SYM50, Symbiotics

The Market: Portfolio quality

Stabilizing PAR>30 days

5


The Market: Leverage

Low, stable financial leverage

6


The Market: Profitability

Stable ROE

7


Microfinance Market Rates

8

Source: Symbiotics

Senior Debt (global Investment grade (>BBB-), USD, all maturities)

Current challenges

Over-indebtedness - a multi-stakeholder problem:

• MFIs may be responsible for lax lending policies and procedures

• MIVs and other lending partners may be pushing MFIs to grow too fast

• Micro-clients may underestimate their capacity to acquire debt and honor payments

• Governments may have regulations that contribute to the problem rather than mitigate it

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• Responsible MFI practices, careful analysis of client repayment capacity

• Reasonable MFI growth targets, responsible investing by MIVs

• Information sharing on outstanding loans (functioning credit bureaus)

• Enhancing client protection and transparency

• Customer financial literacy

10

Consensus on best practices




Overview

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Characteristics of MFIs

• Local nature of the business

• Short-term working-capital loans

• Weekly to monthly repayments

• Relationship-based lending system

• Public-private mix in funding structures

MFI BancoSol, Bolivia

Microfinance Business Model

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Modell calculation interest rate

13

Access to money

Family / friends

• Recipient of doles

• Dependency

• Relationship with

family & friends is

often strained

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• Various possibilities to take out a loan:

Local money lenders

(„loan sharks“)

• Unpredictable, risky

• Extortionate rates of

interest of > 100 % /

month and short

duration

• Money lenders can

change their terms

anytime

Microfinance

institutions

• Regulated access to

money

• Interests of approx.

2-4 % / months and

longer durations

• Official business

relation on an equal

footing

Microcredit

Sample calculation interest rates

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100 $

loan 500 $

loan

A MFI has to estimate an interest rate

of 36 % for a 100-Dollar-loan. A MFI has to estimate an interest rate

of 16 % for a 500-Dollar-loan.

Source: Phineo-Guide 2012. „Small money, big impact“. Guide for effective investments in microfinance.

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How does one invest in microfinance

• Field of activity and focus: city, country and industry

• Client structure

• Products and range of services

• Interviews with management, staff and micro entrepreneurs

• Review of the strategic and business plans

• Examination of policies and procedures of an MFI related to

its social performance

• Compliance with CGAP client protection rules

MFI Due Diligence on Social Impact

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Generating Alpha

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100

105

110

115

120

125

Dual Return Fund I SMX Microfinance Debt Index

Cross-border investment in microfinance

Source: CGAP

• Hard currency lending remains prevalent

BUT:

the trend is for more demand in LC financing

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• targets capital appreciation through exposure to the microfinance institutions worldwide

• enables investors to have an involvement in the microfinance industry in local currency

• promotes a sustainable delivery of financial services to the working poor

• aims at investing in microfinance either directly or indirectly:

almost 100 % promissory notes in local currency

• follows a conservative approach:

no investments in equity of MFIs

no leverage

• is transparent and actively takes part in initiatives to safeguard the social impact and

sustainable work of MFIs

Certified by Certificated by

Vision Microfinance Local Currency

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Country Allocation

Vision Microfiance Local Currency

Region Allocation

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11%

10%

9%

8%

8%

8%

8%

7%

7%

5%

4%

4%

4%

3%

2%

2%

Colombia

Philippines

Kyrgyzstan

Azerbaijan

Russia

Mongolia

Kazakhstan

Armenia

Tajikistan

Peru

Kenya

Cambodia

Indonesia

Tanzania

Dominican Republic

Mexico

0% 2% 4% 6% 8% 10% 12%

Central Asia31%

South East Asia & Pacific18%

Caucasus16%

South America

16%

Central & Eastern Europe

8%

Sub Sahara Africa7%

Central America, Mexico & Caribbean

4%

Currency Allocation 09/2012 (VMF Local Currency)

Source: Fund Portfolio Vision Microfinance Local Currency 22

Weight YTD Since Inception 1.10.2010

Performance against the USD

$2.671.005,31 11% 8% 0%

$2.385.871,21 10% 5% 5%

$2.083.071,99 9% -1% 0%

$2.052.501,45 8% 0% 2%

$2.034.522,22 8% 3% -2%

$1.964.794,51 8% 0% -5%

$1.851.024,52 8% 0% -1%

$1.810.298,56 7% -5% -11%

$1.780.026,88 7% 0% -8%

$1.112.899,79 5% 4% 7%

$1.055.518,05 4% 2% -2%

$1.045.942,12 4% 1% -5%

$990.159,25 4% -5% -7%

$748.702,02 3% 1% -4%

$492.707,03 2% -2% -5%

$382.070,41 2% 8% -2%

COLOMBIAN PESO

PHILIPPINES PESO

KYRGYZSTAN SOM

NEW AZERBAIJAN

RUSSIAN RUBLE

MONGOLIA TOGROG

KAZAKHSTAN TENGE

ARMENIA DRAM

TAJIKISTAN SOMONI

PERUVIAN NEW SOL

THAI BATH

KENYAN SHILLING

INDONESIAN RUPIAH

TANZANIAN SHILLING

DOMINICAN REPUBLIC PESO

MEXICAN PESO

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Loan Distribution: DFIs vs. VMLCF

Source: MicroRate, APM

18%

43%

22%

11%

5%

1%

7%

30%

23%

20%

13%

6%

>500

100 to 500

50 to 100

20 to 50

10 to 20

<10

% of Total Investment

MFI

Ass

ets

Developing Finance Institutions (DFIs)Loan Distribution

Amount lent

Number of MFIs

9%

9%

25%

42%

12%

2%

8%

8%

24%

40%

16%

4%

>500

100 to 500

50 to 100

20 to 50

10 to 20

<10

% of Total Investment

MFI

Ass

ets

VMLCF Loan Distribution

Amount lent

Number of MFIs

Data as of 09/2012 Dual Return Fund –

Vision Microfinance LC*

Benchmark

SYM 50 Index

Total assets of a MFI (m USD) 100,36 210,26

Loan portfolio (m USD) 73,83 157,61

Number of clients of a MFI 81.574 80.871

Average micro-loan of a MFI (USD) 1.008 2.495

Debt/equity ratio 3,64 4,67

Portfolio yield 37% 30%

Borrowing costs ~12% -

Operational expense ratio 16% 17%

Operational self-sufficiency ratio 126% 122%

Return on equity 21% 18%

Portfolio at risk > 30 days 2,36% 3%

Write-off ratio 1,0% 1,4%

*Weighted by EUR Outstanding

MFIs key indicators (VMF Local Currency)

Source: Symbiotics, Fund Portfolio Vision Microfinance Local Currency 24

25

Performance VMFLC versus Emerging Market Debt

Source: Bloomberg

96

98

100

102

104

106

108

110

112

114

Pe

rfo

rman

ce

Vision Microfinance Local Currency USD + 11,52%

PIMCO Emerging Local Debt Fund + 12,58%




Overview

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• 83% of MFIs implement a rigorous system to determine a client’s level of indebtedness

• 83% of the MFIs provides good-quality social information to its stakeholders through a

diversified range of communication channels (MIX Market etc.)

• 90% of MFIs have fair and not coercive collection policies

• 95% of MFIs strive to promote diversity among loan officers and hire staff that reflects

the clients served

• 96% of MFIs have a written, formal social responsibility policy or code of conduct

Vision Microfinance: Key Social Performance Facts

• 100 indicators in line with industry standards, the MIX, UN Reporting Initiative:

Social governance

Labor climate

Financial inclusion

Client protection

Product quality

Community engagement

Environmental policy

Social Responsibility (Symbiotics Social Rating tool)

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• Visit of parntner microfinance insitution „Small Enterprise Foundation“" (SEF)

International

founded in 1997 by World Vision International

provides loans to farmers, sole proprietors and small

enterprises as well as renovation and consumer loans

majority of their microcredits is used for retail

businesses and agriculture.

has a team of 129 employees (which doubled since

2009) and serves over 13.000 clients in 8 regions of

Armenia

Country visit - Armenia, August 2012

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Microentrepreneur Aram Begijanyan

• Aram Begijanyan, 32 years old, lives in Dimitrov village in the

Ararat region with his wife and 2 children (4 year old daughter

& 6 year old son)

• runs a farm where he breeds hens and ducks and keeps 2

green houses, where he grows peppers.

• After borrowing USD 1,500 from SEF International, Aram was

able to improve his farm and to expand it.

purchased a special incubator to hatch eggs in just a few

days

bought fertilizer to cultivate the land and trees

repaired the greenhouse

[email protected]

www.visionmicrofinance.com

Austria

Absolute Portfolio Management GmbH

Wallnerstraße 3/17

1010 Vienna

Austria

Phone: +43 1 533 59-76

E-Mail: [email protected]

Web: www.absolutepm.at The greatest good you can do for

another is not just to share your riches

but to reveal to him his own.

Benjamin Disraeli

Contact

Germany

Absolute Portfolio Management GmbH

Office Frankfurt am Main

Braubachstraße 36

60311 Frankfurt am Main

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Legal Disclaimer

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This presentation is for general information only. It does not constitute any recommendation to buy or sell nor offer any

investment advice. It merely summarises the key characteristics of the fund. The content of this document is not a substitute

for investment advice or other consultations.

The full details of the fund can be found in the simplified or full prospectus, supplemented by the respective latest audited

annual reports and the respective semi-annual reports ( if these are more recent than the last annual reports). These

previously mentioned documents are the only binding basis for the purchase of fund shares. They are available for free in

electronic or printed form at Axxion S.A., 1B, rue Gabriel Lippmann, L-5365 Munsbach, Luxemburg, Phone: +352 76 94 94

540, www.axxion.de.

Investment funds are subject to currency fluctuations which can lead to a loss of the invested capital to the point of a total

loss. The risk disclosure statement is explicitly referred to in the fund prospectus.

The information in this presentation is to be used under one´s own responsibility only. Prior to an investment decision,

potential investors are strongly recommended to read the full prospectus, the annual report and the semi-annual report

(where applicable) and to consult a financial advisor, lawyer and tax accountant.

All data and information has been compiled with utmost care and we rate the used sources as trustworthy. However, we

cannot guarantee their completeness and correctness.

No liability is accepted for any and all liability for investment losses or other damages resulting from investment decisions

based on this information. Past performance is not a guide to future performance.

http://www.axxion.de/





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