Ramesh S Arunachalam
Hugh Sinclair’s recent book
has already stimulated my interest in a topic – regulation of micro-finance
investment vehicles (MIVs) - that has been much neglected. Please see previous articles
that raise the issue of regulation and supervision of MIVs in a general sense (Why
blame the MFIs alone?; Should
not microfinance investment vehicles be judged by the same standards set for
retail MFIs?; and Regulation
and Supervision of Micro-Finance Investment Vehicles: An Urgent Task for
Central Banks and Regulators Globally!)
Now, as noted earlier in the above
articles, by its very nature, regulation and supervision of MIVs is likely to
be very complex because of the diverse legal forms that MIVs assume, the vast
geographies that they operate from and the diverse countries/institutions that they
invest in. Anyway, let us examine the available data on the subject before we
come to any kind of conclusion on the matter.
Please see data compiled from
the Syminvest database[i] (http://www.syminvest.com/)
As noted from the Table
above, the 142 MIVs listed in the Syminvest
database are from 22 countries.
In terms of countries with number
of MIVs greater than or equal to 5 (>=5), there are seven countries –
namely, Luxembourg, United States, The Netherlands,
France, Cayman Islands, India and Mauritius. These seven countries together
account for around 77.46% (or 110 of the 142) of the MIVs
And, these 110 MIVs control
over 94.21% of the total assets (of all 142 MIVs) and 94.27 % of the
micro-finance assets (of all 142 MIVs). Three other points are in order here:
a) for the 110 MIVs, micro-finance assets constitute 68.87% of their
total assets; b) some of the MIVs in the group of 110 have not reported their
micro-finance assets to the Syminvest database (like the 5 MIVs incorporated in
Mauritius; and c) some of the MIVs have neither reported their total assets or
their micro-finance assets (like the 6 MIVs from Cayman Islands). The above
caveats notwithstanding, the larger implications are the following:
a) A very significant number of MIVs (110 or around 77.46%
of all 142 MIVs) are incorporated in the above seven countries;
b) These MIVs control total assets of around 6.63
Billion US $ and this number is likely to increase when the MIVs from
Cayman Islands report on their portfolio
c) These MIVs control total micro-finance assets of around
4.56 Billion US $ and this number is likely to increase when the MIVs
from Mauritius and Cayman Islands report on their micro-finance portfolio
OK, the above analysis clustered
countries with greater than or equal to 5 MIVs in a country and then, did the
analysis.
Hereafter, we look at the
total assets controlled by the MIVs in a given country and then, sort countries
on the basis of their total asset value using a specified criterion (say US $
50 Million in total assets).
As noted in Table 2 below, in
terms of total assets greater than US $ 50 million, there are 6 countries –
namely Luxembourg, The Netherlands,
United States, Belgium, Germany and Italy. The six countries have 96 MIVs
(of the total 142) and these control about 96.59% of the total assets of
all 142 MIVs and 97.97% of the micro-finance assets of all 142 MIVs.
Likewise, as noted in Table 3
below, we list countries (all of its MIVs included) that have a certain minimum
micro-finance portfolio and also a certain percentage of their total assets in
the micro-finance portfolio. Two criterion have been chosen here for segmenting
the countries: a) they must have greater than 25 million US$ as their
micro-finance portfolio; and b) they must have over 50% of their total assets in
micro-finance assets. There are seven countries – namely, Luxembourg, The Netherlands, United States, Germany, Belgium,
Liechtenstein and Italy – having a total micro-finance portfolio greater
than 25 million US$ and over 50% of their total assets in micro-finance
portfolio. Again, these 7 countries have a total of 97 MIVs. These 97 MIVs, in
turn control 97.29% of the total assets of all 142 MIVs and 98.72% of
the micro-finance portfolio of all 142 MIVs.
Taken together, irrespective
of whether the number of MIVs (>=5) is used as a criterion or whether their
total assets (>50 million US$) is used as a factor or whether the size of
micro-finance portfolio (>25million US$) and its proportion of total assets
(>50% of total assets in micro-finance portfolio) is used as a differentiating
input, the key countries where MIV activity appears to be flourishing are the
following countries given in Table 4 below:
One interesting aspect from
the above table is that irrespective of the criterion chosen, the top three
countries are Luxembourg, The Netherlands and The United States – these three
countries account for: a) 86 (almost 60.6%) of the total 142 MIVs; b) 93.13% of
the total assets of US $ 6.63 Billion US $; and c) 93.84 % of the total
micro-finance assets of US $ 4.56 Billion
Therefore, as a start, it may
be prudent for regulators in all of the countries
- given in Table 4 above and especially, Luxembourg, The Netherlands and
The United States - to start looking at the MIVs physically incorporated in
their countries/territories and/or operating from there. For starters, this
would result in a huge number/proportion of the MIVs being regulated and supervised.
In a subsequent article, I look at data for regulating/supervising the fund
managers/sub-advisors of these MIVs.
And before I sign off, I
would like to humbly suggest that Parliamentarians from these countries, just
as in United Kingdom, may want to
start analyzing laws that: a) incorporate these MIVs, and b) regulate/supervise
them - so that the kind excesses witnessed in India (in the years 2008 – 2010) and
elsewhere are not traced to their shores. It is one thing to claim to
fight poverty and enhance access to finance in another country; it is entirely another
thing to let the investment vehicles run amok (with little or no regulation)
and with little regard for what impact their investments have on the
poor people (in other countries).
Here it must be noted that
even reports like the recent CGAP report on MIVs (http://www.cgap.org/p/site/c/template.rc/1.9.57511/)
look merely at growth or decline of investments in micro-finance and the
reasons therein. There is very little (or perhaps even no) mention of what
impact these investments have on the local low income (rural and urban) economy
and excluded/poor people. Here are some examples;
a) In fact, the CGAP report carries the word clients on five occasions and these are
all in the disclosures page – under the heading – “Important Disclosures” (last but one page);
b) The word
impact is not there in the report and impacted is used three times with
references to the following – “slightly impacted
the reported volume of capital flows” (page 3), “impacted PE flows in 2011” (page 4) and “impacted by the crisis that erupted in the state of Andhra Pradesh
in October 2010” (page 7); and
c) The word poor occurs twice and it is in CGAP’s
name - Consultative Group to Assist the
Poor (in the copyright page)
And look at some of the
conclusions drawn in the report:
a) Investments reported in Asia mainly included deals in
India (92 percent of the total volume in the region) with a few other
transactions in Pakistan, Indonesia, and Cambodia. Despite the microfinance
crisis in the Indian state of Andhra Pradesh, India had 19 deals closed and
priced, amounting to over US$88 million compared to 10 deals that amounted to
over US$45million in 2010. (Page 6 of
the CGAP report)
b) Overall, the microfinance PE market experienced
stronger activity in 2011, picking up from 2010, with an increase in the volume
of transactions. However, some lingering effects of the crisis remain, and 2011
saw the continued compression of valuation multiples for MFIs and LIFIs from
the highs in 2009. We believe there is a wider convergence trend between the
valuation of emerging market banks and microfinance providers, be it
specialized MFIs or LIFIs. For 2012, we do not expect microfinance equity
valuations to decouple significantly from the valuation of emerging market
banks. We expect valuations to be stable in most markets, with the exception of
SSA and certain countries of LAC, which could see some increase in valuations. (Page 14 of the CGAP report)
That said, now that
regulation and supervision of MIVs is being debated seriously, I sincerely do hope
that governments and regulators in all these countries (where MIVs tend to
flourish) start looking inward as to their own system of regulation/supervision
and bring in the least required regulation/supervision and
minimum standards for MIVs to operate responsibly….that alone can usher in an
era of responsible finance…in the host countries in Asia, Africa, Latin America
and elsewhere…and then cases like LAPO will hopefully be far and few and in the
distant past…
[i] Usual
disclaimers apply with regard to the above data from the Syminvest database, (http://www.syminvest.com/).
No comments:
Post a Comment