MARKET COMMENTARY JUNE 2016

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1 I. Month s Highlights In June, MFIs, overall, showed sound financial and operational performance, registering a growth in the microfinance portfolios and a slight improvement in the portfolio quality. MFIs leverage position stayed within acceptable levels. The month of June exhibited relatively high investor interest in terms of continued commitment and funding to the microfinance and impact investing asset class. India s Credit Information Bureau (CIBIL) has expanded its reach in the small and micro loans segment. CIBIL will partner and provide information solutions to small and micro lenders to help them make better lending decisions, grow their customer base and drive credit penetration. Credit information solutions have the potential to reduce the average time required for approval of a loan application from approximately 7-9 days three years ago to around 3-4 days today and have contributed to the growth in rural lending in India from 25% five years ago to 40% today. Some new deals have been booked for later disbursements in July to invest inflows coming to the Fund. In June the Fund s total microfinance investment portfolio yield was around 12.5% p.a., and had a duration of around 1.5 years. The fund s June performance was - 1,20% for USD (I) Share Class, influenced by the weaker status of emerging market FX during the turmoil in global financial markets in the last ten days or so of the month. III. Local Currency Updates In June, developments in the global currency market were influenced mostly by the Brexit referendum results, which sent shock waves to the global financial markets. Uncertainty about Europe's future and concerns about global growth and weak inflation will be dominating capital flows for the weeks to come. The Central banks are likely to ease further in order to stabilize markets, while investors will continue looking at both the traditional safe havens and some selected emerging and frontier market assets less exposed to global markets. II. Fund Performance Vision Microfinance Local Currency IDuring June Vision Microfinance Local Currency Fund disbursed the equivalent of 1 m USD in the form of a direct loan to MFI in Kazakhstan. The loan was disbursed in Kazakhstani Tenge. The Fund Management Team Dual Return Funds - Vision Microfinance Page 1

2 IV. Social Impact Corner Christoph Eckart, Fund Manager of C-QUADRAT Asset Management s two microfinance funds, travelled to the states of Kerala, Karnataka and Tamil Nadu in southern India in April 2016 to observe the local microfinance sector and to meet with the local MFIs as well as with their micro-clients. Below is one of Christoph s field trip reports from India. The Dual Return Vision Microfinance Fund and the Dual Return Vision Microfinance Local Currency Fund started to invest in India at the end of 2013, after the Reserve Bank of India introduced a Microfinance Law in response to a crisis, which became infamously known as the Andhra Pradesh Crisis. New regulations to increase transparency and to curb over-indebtedness together with the introduction of credit bureaus foster confidence that the Indian market remains an important microfinance market. This microfinance market will positively impact the lives of poor people if closely monitored by the Indian authorities and both local and international market participants. Vistaar Financial Services Pvt. Ltd. (Vistaar) From the 21st to the 23rd of April 2016 C-QUADRAT Asset Management GmbH visited the main premises and a branch office of Vistaar in Bangalore and in Kunigal in the southern part of the Indian state Karnataka. Vistaar s vision is to be the preferred full range financial services provider to the small business segment. It aims to achieve its vision via deeper understanding of specific customer financial needs through customized products and simple processes. Vistaar Financial Services Pvt. Ltd. started its operations in 1991 as a group lending based Microfinance Institution in Bangalore and shifted its business model to micro, small and medium (MSME) individual loans in In this way Vistaar aims to help the missing middle : entrepreneurs working in the segment between micro and medium sized businesses. Non-Bank Financial Company (NBFC) MFIs cannot work with these clients, because they are not allowed to disburse loans with a credit size bigger than USD, and banks cannot, because they do not have the adequate processes to evaluate these kinds of small businesses. Currently 86% of the small credits are channeled to rural areas, where around 40% of the business activities are agriculture, 20% production, 30% trade and 10% services. The average loan size stands at USD at the end of April 2016 with a portfolio yield of 26,9%. Vistaar enjoys high credit rating on the strength of the institution s solid governance structure, a good capital base comprised of socially oriented investors and international partners and a competent senior management team. The institution operates in a high potential growth market, which can be seen in a steady increase of total assets. The branch in Kunigal Two field officers with the achievement blackboard Reception desk in the Headquarters in Bangalore Page 2

3 The gross loan portfolio stands at around 130mil USD as of mid In spite of strong growth during the last 3 years the portfolio at risk more than 30 days remains at comfortable 3,4%, debt to equity below 1 and return on equity at around 6%. From a social perspective Vistaar has retained its 2015 social rating of 3,5 Stars out of 5 possible stars mainly due to targeting MSMEs and especially smaller enterprises. These enterprises cannot access financing through the traditional banking system due to a lack of collateral. Hence, Vistaar has a direct impact on job creation and the strengthening of the MSME sector, which is the key driving force of the local economy. Vistaar is regulated by the Reserve Bank of India (RBI). Meet a Client Visiting a Micro Entrepreneur with the Institution Vistaar in Kunigal outside Bangalore in the State of Karnataka Less than 100km west of Bangalore, although still a 3 hour car drive through heavy traffic away, lies the village of Kunigal in the state of Karnataka. A street in the old quarters of Kunigal Mr. Eckart during the branch meeting prior to going to the field As for many parts of southern India, the countryside on the drive to Kunigal is defined by agriculture and particularly by coconut trees, but the village with around inhabitants is first and foremost famous for horses. Stud farms were initially established here for breeding war horses, also for the famous Mysore Palace and Temples further south, but now they are the homes of race horses. Vistaar launched branch operations in Kunigal on the 22nd of January 2014 and has successfully financed small and medium entrepreneurs in the region ever since. On Saturday, the 23rd of April 2016 Christoph Eckart could visit some of the small businesses and chat with their owners on the economy, politics, the weather (which considerably affects the agriculture and thus eventually the population s quality of living ) and credit. One of these clients of Vistaar is a cabinet maker, who is working just outside Kunigal with two employees making furniture on order for several shops in the village and for the occasional drop-in customer. Some internal guidelines of Vistaar on how to write a credit report. After applying successfully for a bank loan to buy a planing machine, the cabinet maker wanted to apply for another loan at the same bank to buy working material, primarily wood. Although an existing and reliable customer, the second loan was refused. Page 3

4 This irrational response by the bank is very familiar to the ears of innumerable small entrepreneurs throughout India. They are referred to as the missing middle : making their living between micro and medium businesses. Vistaar realized the opening of this gap in the year 2011 when the Reserve Bank of India changed the regulatory environment for microfinance. Today, the work shop of the cabinet maker finances the necessary wood and other materials with the help of Vistaar, which granted a loan of about USD at an annualized interest rate of 24%. The owner of the shop A spinning mill for silk used for saris The street outside the cabinetmaker s work shop, which is located on the left side Page 4

5 IV. Microfinance-News Mexico launched its National Financial Inclusion Strategy Mexico launched the National Financial Inclusion Strategy (NFIS), which will accelerate access to financial services for more than half of the population currently left out of the formal and regulated financial system. A national financial inclusion strategy is a roadmap to help a country better plan and focus on its financial inclusion goals. Philippines: the Law Institutionalizing Financial Inclusion Committee The President of the Philippines signed into law the creation of Financial Inclusion Steering Committee (FISC), the governing body for the delivery of financial services to low-income households in the Philippines. The FISC has been mandated to provide strategic direction, guidance, and oversight of the National Strategy for Financial Inclusion (NSFI), which serves as a guidepost for public and private sector stakeholders to systematically accelerate financial inclusion in the Philippines. Page 5

6 Legal Disclaimer This commentary 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., 15, rue de Flaxweiler, L-6776 Grevenmacher, Luxemburg, Phone: , The information in this commentary 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. 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. Page 6