1. Trends in Microfinance Investment
Microfinance Club of New York
April 12, 2012

2. Basic definitions Microfinance
Microfinance is the provision of basic financial services such as microcredit, savings, money transfer services and micro-insurance to low-income individuals or to those who have limited access to financial services. Transaction amounts are comparatively small.
Microcredit
Microcredits are loans for productive purposes, whose lending decision is not predominantly based on collateral and are small in size (less than 2x GDP per capita).
Microfinance Institution (MFI)
An MFI is an organization that provides microfinance services and whose lending operations are mainly microcredit.
Microfinance Investment Vehicle (MIV)
MIVs, also known as microfinance funds, are entities that invest in MFIs. For a fund to qualify as an MIV, it must meet the following criteria:
The investment vehicle must be an independent legal entity (i.e. independent of the MFI being funded);
Multiple private investors must be present, or the vehicle must be open to such investors; and
The investment vehicle must focus on investing in microfinance

3. Foreign Investment Flow
Investor / capital markets
MIV
MFI
Micro Entrepreneur
MicroRate Vision
Promote the flow of funds from capital markets to microfinance by increasing transparency and growth in the global microfinance community.
MicroRate started doing MFI ratings in 1996
Since then, MicroRate has performed over 600 MFI evaluations
In 2005, MicroRate started doing an annual MIV survey to provide the industry with the scope of this private investment stream into microfinance.
In 2006, MicroRate did its first evaluation of a microfinance fund.
In 2010, MicroRate and Luxembourg formally partnered to launch Luminis.

4. MIV Growth (in USD millions)

5. Foreign Funding of Microfinance
Source: CGAP

6. Regional Distribution of MF Assets

7. Growth in MIVs

8. MIV Clients Luminis-listed MIVs MFX counterparties
Accion International*
MicroVest+ Plus Fund
Advans SA*
responsAbility Global Microfinance Fund FCP
Alterfin cvba
ASN-Novib Fund
responsAbility SICAV - Microfinance Leaders Fund
Bamboo Finance*
BlueOrchard Finance SA*
responsAbility SICAV - Mikro-finanz Fond
Calvert Social Investment Foundation*
Rural Impulse Fund
Caspian Adviors*
Rural Impulse Fund II S.A.
Consorzio Etimos*
Selectum SICAV SIF*
Deutsche Bank*
Shorecap*
Dual Return Funds*
SNS Institutional Microfinance Fund I
DWM Asset Management*
European Fund for Southeast Europe*
SNS Institutional Microfinance Fund II
Grassroots Capital*
Triodos Microfinance Fund
Gray Ghost Ventures*
Minlam Microfinance Fund*
Impulse Microfinance Investment Fund
TreeTops Capital*
Wallberg Global Microfinance Fund*
Incofin cvso
KCD Mikrofinanzfonds*
Luxembourg Microfinance Development Fund
* MicroRate and MIV are currently in discussions
Locfund
Microvest I, LP
MicroVest Short Duration Fund
ASA International
Microvest I, LP
ASN-Novib Fund
MicroVest Short Duration Fund
Alterfin cvba
Banco Solidario S.A.
MicroVest+ Plus Fund
BlueOrchard Foreign Exchange Fund
Opportunity International
responsAbility Global Microfinance Fund FCP
BlueOrchard Microfinance Growth Facility
responsAbility SICAV - Microfinance Leaders Fund
Calvert Social Investment Foundation
responsAbility SICAV - Mikro-finanz Fond
Community Needs, LLC
Deutsche Bank Micro Credit Development Fund
responsAbility SICAV - Financial Inclusion Fund
Developpement International Desjardins
Root Capital
Rural Impulse Fund
Dexia Micro-Credit Fund
Rural Impulse Fund II S.A.
FEFISOL
Solidarite Internationale pour le Developpement et l’Investissement
FINCA International
FINCA Microfinance Holdings
Gawa Microfinance Fund I
Stichting Hivos-Triodos Fonds
Impulse Microfinance Investment Fund
Stichting Triodos-Doen
Triodos Fair Share Fund
Incofin cvso
Triodos Microfinance Fund
LOCFUND
Unitus Incorporated
Luxembourg Microfinance Development Fund
MicroCredit Enterprises

9. MIV Peer Groups Debt Hybrid Equity Tier 1 Tier 2 Tier 3
Securities type
Debt
Hybrid
Equity
Tier 1
Tier 2
Tier 3
Other considerations:
Closed vs. open-ended
Leveraged vs. unleveraged
Debt = >85% of non cash assets
Hybrid = >15% Equity
Equity = > 65%
Closed ended funds cannot amortize the set up costs (J curve and fixed life of funds)
MFI maturity

10. 2010 Key MIV Metrics Best Average Worst 1-year return 39.1% 6.5% -0.4%
3-year return (annualized)
24.4%
7.8%
2.0%
5-year return (annualized)
10.4%
6.4%
3.2%
Total expense ratio
1.8%
3.9%
11.5%
Return on assets
10.0%
3.1%
-10.4%
Loan duration (weighted average)
11 months
26 months
51 months
Portfolio quality (weighted average) α- β β-
Sovereign risk (weighted average) BB
BB- B
Leverage -
1.6x
38.3x
Social dollar index
6.4
4.4
2.1
Portfolio manager tenure (years as MIV) 11 4 1

11. MIV metrics Methodology to track and compare MIVs: PRSM™ PERFORMANCE
Performance ratio analytics
NAV returns
Comparisons to peer group and target return
dividend, coupon yields
Earnings analysis
Expense metrics
RISK
Portfolio quality
Sovereign risk
Credit risk
Concentration risk
Asset-liability management
liquidity
Market risk
currency risk
interest rate risk
Leverage
Structural risks
SOCIAL
Social mission definition
Corporate responsibility
adherence to ESG principles, CPP, PIIF, etc.
Social performance management
linkage of mission to investment process
tracking & enforcement
Social results – outputs and outcomes
MANAGEMENT
Portfolio manager experience, track record
individual
firm
Governance and internal controls
Investment process
Risk management

12. MIV Data & Results 2011 preliminary findings
Performance
Results still coming in for 2011, but initial indications suggest improvements over 2010 due to increased demand from MFIs (higher asset utilization) and lower cash balances.
Competition from local banks still hindering pricing, especially with the rise of local currency funding, the cost of which eats into the MIV’s margin.
Many MIVs looking outside microfinance to find returns, with much focus on SME finance (pre-export, trade, fair-trade, agriculture, factoring, etc.).

13. Diversity of MIVs
MIV #1
MIV #2
MIV #3