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> Posted by Andrew Fixler, Associate, CFI
Inclusive financial services in Africa are blooming. Between the turn of the millennium and 2011, the number of African MFIs reporting to the MIX increased from 58 to 397. From 2000 to 2014, the gross loan portfolio expanded over tenfold to $6 billion. Between 2003 and 2009, the number of borrowers served by MFIs in Africa increased from 1.6 million to 8.5 million. These numbers represent the development of an economic development tool for economies with very small financial sectors. It is impressive progress for an undeveloped industry beset by sparse human capital, problematic governance, and minimal external commercial interest.
AfriCap, which was the first private equity fund to invest exclusively in African microfinance institutions, and other microfinance investment vehicles (MIVs) funded by social investors have been a key growth factor through capitalizing MFIs and offering technical assistance and training. This interest is relatively new. The African MIV portfolio grew at an average annual rate of 36 percent between 2006 and 2013. This compares with an average growth of 38 percent for investments in the Latin America & Caribbean region since 2006, and 8 percent in both the Middle East & North Africa and South East Asia regions. The strong connection between MIV financing and microfinance sector growth was also noted in a World Bank paper, Benchmarking the Financial Performance, Growth, and Outreach of Greenfield Microfinance Institutions in Sub-Saharan Africa. The paper, released in 2014, explains the relevance of greenfield MFIs to effecting financial inclusion in undeveloped financial markets. These institutions are financed in large part by equity and debt from development finance institutions, as well as a now-significant cohort of MIVs.
The following post was originally published on the Microfinance Gateway.
As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks.
The Center for Financial Inclusion at Accion has recently announced a partnership with The MasterCard Foundation to launch the Accion Africa Board Fellowship program. The new program will promote peer-to-peer learning on governance and risk management practices at financial institutions that serve low-income clients in sub-Saharan Africa, a region with more than 6.6 million microfinance clients.
We spoke with Beth Rhyne (left), Managing Director of the Center for Financial Inclusion at Accion, and Ann Miles (right), the Director of Financial Inclusion at The MasterCard Foundation, to learn more about their vision for the program.
Good governance helps an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. Why do you think the microfinance industry in Africa needs such a program at this time?
Miles: Good governance begins at the top of any organization. The policies that are set, and the signals that are sent, by board members and CEOs permeate throughout an organization. They are a major component, perhaps the major component, in determining how an organization succeeds in its given mission. So, how a board does its work is critically important, and it’s something that we at The MasterCard Foundation care about a lot.
> Posted by Emily Kunz, Financial Inclusion Analyst, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
Impact investing is becoming increasingly alluring. However, anyone who has tried to put their finger on the pulse of this trendy subject has likely been inundated with dense reports focusing on industry minutiae that would take weeks to read. Who has time for this? Not too many it would seem considering that the World Bank recently revealed that a third of the reports it produces have never been downloaded – not even once!
Accordingly, we challenged a team of Credit Suisse Virtual Volunteers (Credit Suisse staff members David Samach, Anne Levonen, and Surender Gounder) to research the world of impact investing – reading industry reports, talking with many of the relevant players, running the numbers – and synthesize this information into a brief and user-friendly overview of the current impact investing landscape.
The team’s findings were presented last month to the Financial Inclusion Equity Council in New York. The Prezi presentation the team gave is featured above, available by clicking the image or here.
Too many definitions fuel industry confusion. If you have trouble comfortably committing to one definition for impact investing, you’re not alone. While researching, the Virtual Volunteers identified a fundamental industry issue: there is no universally agreed-upon definition for impact investing. Competing definitions, as well as models and reports that aren’t aligned, continue to fuel misunderstandings about and within the sector. Ultimately though, the Virtual Volunteers proposed defining impact investing as “an investment approach that intentionally seeks to create both financial return and a positive social or environmental impact that is actively measured.”
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
The Council of Microfinance Equity Funds (CMEF) was recently renamed the Financial Inclusion Equity Council (FIEC) in order to reflect both the evolving nature of the industry and Council membership.
In my recent interview with Jim Kaddaras on the landscape of microfinance equity investing in 2003, it quickly became evident that in some respects much has changed over the past decade, while in other ways many of Jim’s comments still ring very true today.
Different Context:
Since 2003, like the expanding industry, Council membership has both grown in numbers and also changed in composition. For instance, a few direct financial service providers have joined the Council as they have now started to invest equity regionally.
Likewise, as impact investing has become far more mainstream in the last decade, some members (e.g. Triodos Organic Growth Fund and responsAbility Fair Trade Fund) have increasingly started to invest in adjacent impact investments. These investments go beyond traditional microfinance to include agriculture, housing, energy, etc. However, microfinance is still by far the majority of most Council members’ portfolio – and also the main proven model for returns.
In addition to the advent of new adjacent impact investment funds, the Council now increasingly has other “beyond microfinance” topics on its agenda, including disruptive technologies and the incredible potential for mobile banking given the now ubiquitous presence of mobile phones. Read the rest of this entry »
> Posted by Danielle Piskadlo, Senior Program Specialist, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
In 2003, the Council of Microfinance Equity Funds (CMEF) was formed by a handful of equity investors in microfinance with the goal of sharing, developing, and disseminating industry best practices in equity investing.
I recently had the pleasure of catching up with Jim Kaddaras, who was Vice President of Special Projects at Accion from 2001-2003. He was instrumental in launching the CMEF in 2003, and also led the charge on the creation of Accion Investments. Jim is now a Partner at Developing World Markets, and is still a Council member.
Q: What did the landscape of microfinance equity investing look like in 2003?
Jim Kaddaras: It wasn’t much of a landscape – it was more of a scatter shot.
Accion owned stakes in some of their Latin American affiliates and Accion Investments was just launching in 2003. Procredit was a player (they were called IPC back then and their banks had separate names). FINCA had some equity investments and ShoreBank had a smattering of equity holdings.
ProFund had been around since 1995 as the first investment company focused on microfinance equity but it was winding up when the Council started. Africap was just starting, based on the ProFund model. Various other Council members, plus the development finance institutions (DFIs) and several non-profit networks, held a handful of equity investments.
Q: What was the goal of the Council when it was formed?
JK: We felt that by gathering people who had been making equity investments in a one-off way, we could help to develop and disseminate best practices in the field.
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