Micamericas

Apr 16, 2008

Foromic: The MegaNetwork of Microfinance

By Lucy Conger

The IDB’s 10th Inter-American Forum on Microenterprise marked a genuine coming of age for the annual conference on microfinance and microenterprise. All minds were focused on the subject of microfinance and it dominated the delegates’ conversations in the hallways in San Salvador—a reflection of the vigor, expansion and professionalism of today’s microlenders.

The forum has become an essential stop on the business circuit of investors and service providers in the microfinance industry. “If I stand here in the middle of the hall, eventually I see everybody,” says Sam Moss, president of Gray Matters Capital, an assets management company for social investments based in Atlanta, Georgia. “I’m learning what other people are doing; investment opportunities come out of that,” Moss explains.

The forum, held in October, broke new ground in terms of the number of private investors and service providers attending. “The forum is a great networking opportunity; I always meet people or institutions I didn’t know existed. It is one of my favorite events,” says Dinos Constantinou, managing director of the Global Microfinance Group, an investment group based in Lausanne, Switzerland. Constantinou expected to see 20 to 30 clients during the San Salvador meetings, making the forum the most productive event he attends all year in terms of client meetings.

Private investors in microfinance institutions (MFIs) at the 2007 forum included Omidyar Network; the eBay investment fund; responsAbility, a Swiss investment vehicle backed by four banks; the Dutch fund Jump Start; the Swiss fund BlueOrchard; Minlam Asset Management and Distributed Capital, both based in New York City; and Johnson Capital, based in Los Angeles. Government investment agencies from the Netherlands, Switzerland, Belgium, and Norway also met and mingled in San Salvador.

Networking is the name of the game at the forum, for prominent microfinance institutions, too. Tomás Burlat, coordinator of Foncap, an Argentine second-tier bank that guarantees loans for microfinance institutions, spends his time meeting with private investors as well as foreign aid agencies and multilateral funders. “I’m prioritizing funds that lend in local currency,” he explains. One such fund is Locfund, an IDB-backed initiative to reduce MFIs’ foreign debt.

Bank managers at the forum are looking to raise working capital. “More than anything else at these meetings, I make contact with my funders,” says Pedro Arriola, general manager of Banco ProCredit of Ecuador, a large bank in the 19-institution ProCredit network. During the forum, he focuses his energies on bringing funders up to date on advances at ProCredit, the economic outlook in Ecuador, and funding plans. “For a mature entity, business is the most important thing at the forum,” explains Arriola.

In fact, business has become so important that the panels on microfinance and small business development take a back seat for many forum participants. “I don’t have time to go to the panels as I’d like,” says Fernando Lucano, managing director of Cyrano Management, which administers $200 million in microfinance investments.

This is a marked change from just five years ago when the attending delegates came mainly from nonprofit microlending organizations and public-sector donors. In San Salvador, the hallways and workshops were packed with representatives from banks, rating agencies, software firms and other service providers, along with the full complement of MFI managers. “There’s a lot of enthusiasm; it is clear this is now a real market and a real investment,” says Sandra Darville, chief of the Access to Finance Unit, Multilateral Investment Fund (MIF), of the Inter-American Development Bank.

Rating agencies are able to meet with several dozen clients at the forum, says Damian von Stauffenberg, founder and principal officer of MicroRate, the first MFI rating agency. “Here we have all our clients in one spot; for us that’s the heart of the forum,” he says. In addition to negotiating plans and prices for future ratings, MicroRate also holds meetings at the forum with MIF funders. “The funders drive demand, and they are very important for us,” he adds.

Fears that the crisis in the subprime mortgage market in the United States and the growing credit crunch would scare funders have proven unfounded. The business buzz at the forum made it clear that interest remains strong in lending and investing with micro-finance institutions. “The credit quality is seen as high,” says IDB’s Darville.

In fact, private banks and investors are ready to increase their exposure to microfinance. In San Salvador, part of the business agenda of IDB officials was to meet with private investors to “talk about how to organize the system so it is easier for them to place the money,” explains Darville.

The deals being struck as a result of the meetings in the hallways and lobbies of the San Salvador hotels are becoming ever more complex. The U.S. subprime mortgage crisis is apparently not a concern for Swiss-based Global Microfinance Group—so much so that Constantinou is currently working to structure a collateralized debt obligation to back 10-year loans of working capital to microfinance institutions so they can make housing loans.

The forum also draws market actors who are looking to identify trends. Ulysses de la Torre, research director for Distributed Capital, came to talk with microfinance institutions that hold debt in foreign currency, especially in U.S. dollars. In his meetings, he discussed the risks posed by holding such debt. “I’m not here to look for clients. I’m here to see how people are looking at this; they now recognize that debt in hard currency is an issue,” he says.

The business buzz that has now taken hold at the forum can only grow louder in coming years. This year’s stunning success of Mexican microfinance bank Compartamos’s IPO will draw new, keen attention to the industry (see story on page 29). The sale of Compartamos stock netted US$468 million for participating shareholders and was covered in most financial media worldwide.

The intense focus on microfinance as an investment opportunity is bringing a shift in the composition of the meetings. “The forum used to be mostly women, now it’s mostly men,” notes Clara Serra de Akerman, president of WWB Colombia, a woman-focused microfinance institution based in Cali. “The business focus attracts more men, and women are less predominant than in the past,” she observes.

“Women are as swept up in the business buzz as men,” says Akerman, who adds that she comes to the forum to network. Not a moment is lost. “Even in the bathroom, someone tried to have an appointment with me!” she says with a laugh. “We agreed to set a time for later.”

BOX
A Quiet Corner, Please

As has become a growing tradition at the Inter-American Forum on Microenterprise, a Punto de Encuentro, or “Meeting Place,” was organized at the most recent forum in El Salvador to accommodate the ever-growing demand for a quiet corner to have a conversation about business, new experiences, and strategic alliances. This year the event was sponsored by SISTEMA FEDECREDITO, which spread news about the meeting spot through the creation of an official web page. Forum participants could view the web page to learn the latest about arranging meetings, national and international business partnerships, as well as a growing exchange of ideas and information swirling about in the micrenterprise sector.

During the three-day forum, Fedecrédito offered ample and comfortable rooms—for use exclusively by prearranged meeting groups—which were always well attended.

In all, some 75 companies from many different countries in Latin America, the Caribbean, and Europe all took advantage of the venue, and by the time the forum drew to an end, more than 350 had congregated there at different scheduled times, in approximately 150 different meetings of various size.

But there is no such thing as a free lunch, as the saying goes. Fedecrédito manager Ovidio Magaña confessed that his institution was after something as well.

“Fedecrédito took ample advantage of the opportunities that arose from sponsoring the Punto de Encuentro to advance business alliances and hold targeted meetings,” Magaña admitted.

So the business of business carries on in the corner.

As the sponsor of the Meeting Place at the 10th Inter-American Forum on Microenterprise, Fedecrédito successfully fulfilled its principal goal of spawning a wide range of meetings and international business deals.

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