Morgan Stanley / Women's World Banking MF Conference in NYC
I spent yesterday at a microfinance conference co-sponsored by Morgan Stanley and Women’s World Banking in New York. I was pleased to find that one of the primary areas of focus and discussion was equity investment opportunities for the microfinance sector. This covered a range of topics, from MFI equity valuations to equity investor selection criteria. I can’t help but think that not even two years ago such an equity-heavy event would have been unthinkable, much less feasible for microfinance -- debt and limited types of structured finance were the topics realistically within reach then. And to that end, I can only imagine with enthusiasm what an event such as this may tackle two years’ from now!
The afternoon saw a ‘competition’ among three MFIs, the Kashf Foundation from Pakistan, Share Microfin from India and Findesa from Nicaragua. Each of these MFIs had been paired with an investment analyst team from Morgan Stanley and tasked to develop a pitch related to its ideal capital structure and investor base. The presentations were, in a word, fantastic. (If I were Kashf, Share Microfin or Findesa I would want to hire my Morgan Stanley team in-house tomorrow!) The winner, Findesa, received an advisory services package from Morgan Stanley’s Microfinance Institutions Group (MFIG). The Chairman of Findesa, Gabriel Solórzano, was a class act -- knowledgeable, witty and clearly had rehearsed his pitch. When asked to describe in one minute or less why one should not invest in Findesa, he replied “Either you don’t like me, you are country risk-averse, or you have a problem with a company that invests in the poor and also makes a profit.” To which there was tremendous applause.
The conference wrapped up with a re-cap of several noteworthy international microfinance capital markets transactions in 2007 and the current state of affairs. The CLO market for microfinance (and most other asset classes, to be sure) has nearly dried up in recent months, so there has been a shift into alternative forms of direct MFI investment for the time being. We learned about the first international subordinated debt issuance in the Dominican Republic, in which the MFI had to teach the regulators themselves about the regulatory approval process (and did so in record speed – taking only one month). We learned much about the post-IPO world of a Kenyan MFI, Equity Bank, its experiences as a successful public company and also about how recent events in Kenya have affected its operations. Since going public, Equity Bank has become the fifth largest company on the Nairobi Stock Exchange and a model success story. It was responsible for opening 62% of all new bank accounts in Kenya in 2007. However its success has opened it up to much greater public scrutiny and interest. For instance, both of the recent presidential candidates received approximately 4 million votes each, and Equity Bank has 2 million clients – in other words, Equity Bank’s customers theoretically could represent 25% of the entire country’s voting electorate. Wow. And finally there was a presentation on the Compartamos IPO and the IPO process in general, which is a topic that is better explained elsewhere – this CGAP report is a good place to start, as it also includes discussion of some of the continuing debates (about interest rates, investment returns and the like) in the international microfinance community today.