APM Microfinance Webinar Microfinance Investment Insights Arman Vardanyan, Head of Microfinance & Christoph Eckart, Portfolio 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: 2
Absolute Portfolio Management 2006: company foundation of Absolute Portfolio Management (www.absolutepm.at) located in Vienna focus on absolute return products and microfinance launch of the first microfinance fund Dual Return Fund Vision Microfinance launch of microfinance platform www.visionmicrofinance.com 2010: launch of the second microfinance fund Dual Return Fund Vision Microfinance Local Currency First microfinance fund worldwide which distributes loans solely in local currencies on an unhedged basis 3
Overview Microfinance market review 2012 2013 Investment outlook Social impact news from Ecuador and Mexico 4
The Market: MFI Loan portfolio Strong and steady growth of MFIs, Ø 20% in 2012, regional differences 5 Source: SYM50, Symbiotics
The Market: Portfolio quality PAR>30 days: stable throughout 2012 6 Source: SYM50, Symbiotics
The Market: Leverage Slightly increased financial leverage, sound mix of funding sources 7 Source: SYM50, Symbiotics
The Market: Profitability Profitability remains stable in most regions, better controlled operational expenses 8 Source: SYM50, Symbiotics
The Market: Rates High liquidity levels, strong competition => downward pressure on rates MFI Senior Debt (global Investment grade (>BBB-), USD, all maturities) Source: Symbiotics 9
The Market: MIV assets MIV portfolio annual growth (~16% in 2012) higher than in 2010 and 2011 Luxembourg Microfinance Investment Vehicles (MIVs) 10 Source: Symbiotics
The Market: MIV performance The highest annual return (in USD: 3.58% in 2012) since the pre-crisis levels SMX USD - Symbiotics Microfinance Index - U.S. Dollars 11 Source: Symbiotics
6 years Vision Microfinance Vision Microfinance selects its partners and investments for social and sustainable principles. The funds are monitored by independent authorities such as LuxFLAG and CGAP. 12 So far more than 344 m USD have been handed out in the form of 358 promissory notes to 161 different MFIs in 41 countries. More than 250.000 micro-entrepreneurs have been financed.
Generating Alpha 13 Source: APM, Bloomberg, Symbiotics
Cross-border investment in microfinance Hard currency lending remained prevalent in the past. Now the trend is for more demand in LC financing 14 Source: CGAP
Growth potential Emerging Markets Growth in emerging market and developing economies is on track to build to 5.5 percent in 2013. Global growth is projected to increase during 2013, as the factors underlying soft global activity are expected to subside. However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States, according to forecasts from the Washington-based International Monetary Fund. Emerging-market public debt levels are expected to decline as a share of GDP, toward 30 percent, in contrary to the advanced economies, where public debt is in excess of 100 percent of GDP and rising, IMF estimates show. Source: IMF (01/2013) 15
Yields of EM LC Bonds with maturity of two years 9,0% 8,0% 8,0% 7,0% 6,7% 6,0% 5,8% 5,0% 4,0% 3,0% 5,2% 5,0% 4,9% 4,6% 3,9% 3,1% 2,9% 2,9% 2,8% 2,8% 2,0% 1,0% 0,0% 16 Source: Bloomberg, Oct. 2012
Yields of LC micro credits with maturity of one year 18,0% 16,0% 16,8% 15,3% 15,0% 15,0% 14,0% 13,8% 14,0% 12,0% 13,0% 12,0% 12,1% 10,0% 10,6% 10,6% 10,6% 10,5% 10,3% 9,9% 9,6% 8,0% 6,0% 6,3% 4,0% 2,0% 0,0% 17 Source: Dual Return Fund Portfolio
Vision Microfinance Local Currency enables investors to have an involvement in the microfinance industry in local currency promotes a sustainable delivery of financial services to the unbanked people 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 Certificated by Certified by 18
Vision Microfiance Local Currency Region Allocation Country Allocation 19
Currency Allocation 01/2013 (VMF Local Currency) Weighting YTD 2013 $2.943.894,81 9% -1% $2.527.311,13 8% 0% $2.163.775,91 7% -1% $2.118.580,48 7% 2% $2.089.952,85 7% 2% $2.069.768,22 6% 0% $2.028.881,96 6% 0% $2.025.676,26 6% 1% $2.018.026,24 6% 0% $1.814.892,44 6% 0% $1.779.855,65 6% -1% $1.511.240,03 5% 0% $1.082.535,24 3% 1% $1.020.681,67 3% 0% $1.017.961,51 3% 0% $1.007.839,43 3% -2% $1.003.935,22 3% -1% $747.671,82 2% -3% $513.212,54 2% 1% $497.334,09 2% -2% 20 Source: Fund Portfolio Vision Microfinance Local Currency
MFIs key indicators (VMF Local Currency) Data as of 01/2013 Dual Return Fund Vision Microfinance LC Benchmark SYM 50 Index Total assets of a MFI (m USD) 114,51 235,00 Loan portfolio (m USD) 104,18 175,00 Number of clients of a MFI 79.338 84.818 Average micro-loan of a MFI (USD) 1.318 2.450 Debt/equity ratio 3,81 4,76 Portfolio yield 35% 30% Borrowing costs ~ 12% - Operational expense ratio 15% 17% Operational self-sufficiency ratio 124% 120% Return on equity 19% 17% Portfolio at risk > 30 days 2,23% 3% Write-off ratio 1,0% 1,4% 21 Source: Symbiotics, Fund Portfolio Vision Microfinance Local Currency
Performance VMFLC versus Emerging Market Debt Vision Microfinance Local Currency USD + 14,47% PIMCO Emerging Local Debt Fund + 17,39% 22 Source: Bloomberg, Symbiotics
Overview Microfinance market review 2012 2013 Investment outlook Social impact news from Ecuador and Mexico 23
Microfinance asset class The attractiveness of microfinance stays strong, because of stabilized market and healthy MFI indicators increasing importance of emerging and frontier economies the search for new growth markets the new drive for global sustainability 24
Market Outlook 2013 Growth in emerging and frontier markets fuels growth in microfinance Further progress in the MFI performance expected Regional differences will persist, but to a lesser extent Risk of over-indebtedness will exist, market has to be monitored carefully High liquidities existing in some markets can drive rates downwards Political interference risk will remain a significant risk Improvements in social performance Microfinance as part of a broader Impact investing agenda 25
Overview Microfinance market review 2012 2013 Investment outlook Social impact news from Ecuador and Mexico 26
Country Visits Ecuador and Mexico Quito Ecuador, October 2012 FINCA Ecuador Fundación Espoir INSOTEC Fundación Alternativa Mexico City, Villaflores and Zinacantepec Mexico, November 2012 Solución Asea Forjadores 27
Country Visit: Ecuador, October 2012 Presidential and parliamentary elections are scheduled for February 2013 (Sunday,17 th ). Experts forecast - the President Rafael Correa will be reelected. Strong macroeconomic indicators, though the economy is highly dependent on the oil price. Well regulated microfinance market. A new law aiming to regulate the credit bureaus has been approved in 2012. Interest rate cap on microfinance lending: 30.50% Several taxes on international payments affect the MFI s international funding environment. 28
Fundación Alternativa - Ecuador Fundación Alternativa para el Desarrollo www.fundacionalternativa.org.ec NGO founded in 1991 and located in Quito Total Assets of 12.7 mil USD Relationship with Dual Return Vision Microfinance since 2010 Currently investments of 500.000 USD with the NGO Fundación Alternativa follows the mission to improve the quality of life and foster financial inclusion among vulnerable people, their families and communities through: Education Health services Insurance Women empowerment 29
Country Visit: Mexico, November 2012 Presidential and parliamentary elections took place on July 1 st 2012 resulting in the election of Enrique Peña Nieto (PRI 1929-2000) and replacing Felipe Calderón (PAN 2000-2012) as President. Microfinance demand is getting stronger, but security issues are still problematic. North-south divide regarding the impact of organized crime. Currently Dual Return has investments of 1 mil USD in Mexican Pesos in the country. 30
Solución Asea and Forjadores - Mexico Villaflores in the state of Chiapas: Solución Asea Founded in 2002, relations since 2011 Total assets of 16 mil USD Currently investments of 1 mil USD in MXN Zinacantepec, Estado de Mexico: Forjadores Founded in 2005 now part of Grupo ACP Total assets of 8 mil USD Currently no exposure 31
Contact info@visionmicrofinance.com www.visionmicrofinance.com Absolute Portfolio Management GmbH Wallnerstraße 3/17 1010 Vienna Austria Phone: +43 1 533 59-76 E-Mail: info@absolutepm.at 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 32
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