November 20, 2012
Is the Other Shoe Dropping on Microfinance Investment?By Timothy Ogden
In the last week, two significant deals in the world of microfinance investment have been announced. First, Bamboo Finance announced that it was acquiring "a controlling interest" in Accion Investments, a $105 million for-profit investment fund started by Accion. In context, Bamboo Finance had $195 million of assets under management. Yesterday, Microvest GMG Asset Management announced they had taken on MinLam Microfinance Fund, a $47 million debt fund making loans in local currencies. Microvest GMG currently has $245 million of assets under management.
While these transactions likely have a variety of motivations, it's impossible not to wonder if we are seeing the beginning of a wave of consolidation driven by the souring of public sentiment on microfinance. One of the major questions coming out of the series of rigorous impact studies of microcredit (all of which found limited impact) and the Andhra Pradesh crisis was whether the rapid growth of the microfinance industry would be affected. For the last decade the amount of money flowing into the sector has grown dramatically driven by the image of microfinance as the first institutional-grade social investment. The pressure on microfinance investment vehicles was mainly to find new places to invest the money flowing into them (recall that Unitus shut down two years ago, at least in part because it saw a lack of opportunity to replicate its model in India elsewhere). And, of course, some people have cited the large inflows into microcredit as a cause of microcredit crises in various places around the world. If investors and pension funds are asking tougher questions about microfinance investments that could be relfected in pressure on microfinance investment vehicles to cut costs. Consolidation of the funds is an obvious route to reducing cost.
I expect that we'll see a lot of discussion sparked by these two transactions in the coming weeks and months. It will be very interesting to watch the medium-term trend on capital flows into microfinance investment vehicles.