Posted by: Katherine Oglietti
Interview with: Michael A. Edberg
Director of Investments, MicroVest Capital Management
MicroVest is a capital-mobilizing intermediary that facilitates the flow of private capital to microfinance institutions across the globe. It lends at market rates with the belief that a commercial approach to investment encourages MFIs to become more efficient and ultimately provide a better service to clients. MicroVest assesses an MFI’s social performance during its due diligence process before investments are made, such as client outreach and providing financial services designed to reach the poorest of the poor. It recently began a focus on how an MFI protects against client and systemic over-indebtedness. In the following interview, Michael Edberg explains the relationship between social performance and socially responsible investment.
MIX: Does social performance reporting influence MicroVest's choice to invest in a given MFI? If so, in what way?
Mr. Edberg: Social performance reporting does not directly influence MicroVest's choice of investments. However, we do target our investments to financial institutions that provide financial services to the bottom of the pyramid for productive purposes. We do not look favorably upon intuitions that claim to do micro lending, but in fact are low touch, high cost consumer lenders. Our assessment of an institution’s focus and lending practices occurs as part of the due diligence process and is not necessarily driven by specific metrics reported by the MFI, but by our assessment of how market focus and lending practices are reflected at all levels within the institution (from senior management to the branch loan officer).
MIX: Have you observed any trade-off between financial and social performance among the MFIs MicroVest invests in?
Mr. Edberg: No, but this is not tracked very closely. We invest in those institutions whose mission is to extend financial services to the world's majority. As commercial investors, our experience is that the most financially successful institutions are those that keep their eyes on their original mission, have sound governance, and use transparent lending practices.
MIX: What social performance indicators is MicroVest most interested in, and do you further investigate these indicators during your due diligence process?
Mr. Edberg: We look at: (i) outreach (loan tenors, percentage of loans to women, and market linkages); (ii) Consumer Protection/fair lending practices; (iii) innovation; and (iv) financing, local ownership and saving mobilization. At MicroVest, we believe that equity investments have higher impact than debt, because equity takes greater risk than debt, often implies a role in governance, and every dollar in equity represents 3-5x debt mobilization.
MIX: From an investor's perspective, does a strong focus on social performance contribute to an MFI's financial performance and potential for development?
Mr. Edberg: At MicroVest, we believe that loans for productive purposes have a greater development impact than consumer loans. Financial performance and potential for development are two sides of the same coin for the strongest MFIs. Business success depends on penetration of a well-defined target market, offering those products that are valued in that market, and operating in a sustainable manner with respect for all stakeholders in the business (stockholders, management, employees and clients). By definition, those MFIs that show the greatest potential for financial performance are those that best expand the served market. Financial inclusion or deepening is the basis of the social performance indicators, the heart of microfinance, and a core value of MicroVest.
***
For more information on MicroVest, please visit: http://www.microvestfund.com/. You can also review their fund structure, performance, fund instruments, and partnerships on MIX Market: http://www.mixmarket.org/funders/microvest-i
Comments