Microfinance investment funds are alive and well
Microrate’s “State of Microfinance Investment 2013” report shows that Luxembourg remains the preferred domicile for microfinance investment vehicles (MIVs), accounting for 1/3 of funds and 52% of assets.
Today the members of the European Microfinance Platform (e-MFP) come together for their annual three day conference in Luxembourg. The conference coincides with the launch of the annual Microrate "State of Microfinance investment" survey. In its 8th edition, this year’s report is based on feedback from 92 MIVs representing 95% of global assets under management.
Microrate reports that the growth rate experienced by MIVs in the mid 2000s has slowed in recent years to a "new norm" of just under 20%, with the underlying microfinance portfolio (money invested) growing at a similar rate. As a result, liquidity levels have fallen to just 8.2% from a high of 14.6% in 2009, reducing the pressure - or the temptation - to force money into the market. Receiving too much capital from investment funds, and the pressure to invest it, was one of the underlying causes of the misselling scandals by a handful of microfinance institutions that rocked the industry a few years ago.
Several other factors indicate that the market has reached a viable cruising speed that should enable it to avoid the extremes of euphoria or disgrace. Portfolio investment has grown in all regions, with Azerbaijan (up 45%), Georgia (up 78%), Mongolia (up 38%), and Bosnia (up 43%) among the fastest-growing recipient countries.
Further signs of maturity are the orderly redemption of $438 million in 2012 and de-consolidation in the market, with the largest MIVs and asset managers losing market share to newcomers. Institutional investors continue to dominate the market, with 56% share of total investment.
Luxembourg remains the leading domicile for MIVs, with a 31% global market share. Significantly, share of total assets under management has crossed the half way mark to reach 52%, possibly reflecting the particular expertise of the Luxembourg financial centre in cross-border distribution.
Around 90% of assets under management in Luxembourg MIVs are in funds that have received the LuxFLAG Microfinance Fund label. Sachin S. Vankalas, speaking for LuxFLAG, commented that the label was also available to foreign MIVs: two US funds have already been awarded the label.
The Microrate “State of the Microfinance Investments 2013” report is sponsored by Citi Microfinance, Corporación Andina de Fomento, the European Investment Bank, the Luxembourg government, LuxFLAG, and PwC Luxembourg.
A full copy of the report can be downloaded here.