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Multilateral Investment Fund MIF

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Building a microfinance industry ... The industry needs to move toward standardization in terms of legal structure, ... Incipient v/c industry with no track record ... – PowerPoint PPT presentation

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Title: Multilateral Investment Fund MIF


1
Multilateral Investment Fund (MIF)
  • Established in 1993 to encourage the growing role
    of the private sector in Latin America and the
    Caribbean.
  • Equipped with funding of US 1.3 billion, for
    both grants and investments to support
    small-scale, targeted interventions that pilot
    new approaches and act as a catalyst for larger
    reforms.

2
Small Enterprise
Investment Fund
  • Uses equity, loans, and quasi-equity to promote
    small and microbusinesses in Latin America and
    the Caribbean.
  • US 220mm committed in 35 venture capital funds
    and 18 microfinance institutions
  • Seeking innovative approaches to solve old
    problems

3
Capital Markets Case Study IBuilding a
microfinance industry

4
The experience of donors in making investments
in Latin American microfinance institutions?
  • Donors took early risks of start-up institutions
    which private capital was unwilling to take.

5
Current Status
  • Multilateral and bilateral agencies participating
    in specialized investment funds like Profund,
    Lacif, IMI, Gateway.
  • Joint ventures by donors with Private,
    strategic investment seen in new entities like
    Bangente, VZ, FIE, Bolivia, Ecofuturo, Haitian
    initiatives.
  • Many microfinance institutions are now active,
    recognized borrowers on local capital markets

6
Challenges in mainstreaming the industry
  • Confused, inconsistent legal, regulatory
    environments.
  • Governance challenges caused by ownership
    structures, newness of the activity.
  • Still, relatively little private capital involved
    to date because of high perceived risk.

7
But!
  • Continued sound performance by market leaders
    which are increasingly visible. Many mfis are
    the best performers in their financial sector -
    ROEs of over 15.
  • Varied institutions at various stages of growth -
    healthy competition and stable, diversified
    funding sources
  • Increasing interest by traditional banking sector.

8
AND!
  • More consistency in lending methodologies
    as best practices are proven.
    Actuarial analysis can be made.
  • Development of new financial products that raise
    new opportunities for investment and
    diversification

9
How to bridge gap between formal capital market
and the sector ?
  • Capital markets are increasingly globalized.
    Investors have a wide area of investment
    opportunities and very little time to invest in
    choosing among alternatives.
  • The industry needs to move toward
    standardization in terms of legal structure,
    methodologies, regulatory structures, etc.

10
Attracting capital to the sector
  • Transparency, consistency and high quality of
    financial information.
  • Adviser, rating agencies, other third parties
    should evolve which can intermediate between
    entities and potential investors. MIF funding for
    this.
  • Risk sharing with private sector DFL bond issue

11
Capital Markets Case Study IIBuilding a
venture capital industry

12
Building a Venture Capital Industry the
starting point
  • Huge unmet demand by cash-strapped SMEs
  • Incipient v/c industry with no track record
  • Poor regulatory environment accompanied by, in
    some places, poor rule of law
  • Investors could invest in high yielding
    government paper why invest in illiquid high
    risk instruments?
  • Scarce pool of experienced v/c managers
  • Poor exit environment small, illiquid stock
    exchanges - and lack of upside potential

13
Building a Venture Capital Industry - The Goals
  • Increase the pool of local v/c managers with
    track record
  • Develop success-stories, best-practices, new
    locally-based models, market standards and
    benchmarks
  • Attract private and institutional investors by
    demonstrating potential
  • Raise awareness and v/c culture among businessmen
    and governments
  • Improve regulatory environment

14
Building a Venture Capital Industry Steps Taken
  • A large portfolio of targeted v/c investments
    looking for strong demonstration effects 7
    funds in Brazil, 6 in Mexico, 9 regional
    vehicles, rest are country funds throughout LAC
  • An increasing number of grant projects targeting
    structural and regulatory barriers
  • Raising awareness among governments and
    key-players conferences Mexico, Brazil,
    Argentina
  • Disseminating best-practices and
    lessons-learned

15
Bridging the gap between formal capital markets
and the sector ?
  • Closing the financial cycle by providing seed
    capital for the future LAC winners
  • Providing the needed critical mass of v/c funds
    and managers to attract larger players
  • Helping to put in place a more conducive
    regulatory environment
  • Helping to develop new vehicles and instruments
    SBIC type models, quasi-equity finance, etc.

16
Building a Venture Capital Industry - FINEP
Case Study
  • Brazil Early 1990s
  • v/c industry incipient
  • Huge unmet demand
  • No intermediaries to assist entrepreneurs
  • Very few investors
  • No organized market

17
Building a Venture Capital Industry - FINEP
Case Study (Contd)
  • Government paper paid very high rates
  • No experienced v/c managers
  • Overly regulated legal vehicle
  • Poor exit environment small, illiquid stock
    exchanges
  • Poor protections for minority investors

18
Building a Venture Capital Industry - Steps
taken by MIF and its partners
  • Finep/Sebrae/MIF/private participants signed an
    agreement to co-invest in new venture vehicles
    a funds incubator
  • Finep Venture Capital Web portal to provide
    entrepreneurs/managers with market info
  • Conduct a series of Venture forums for
    matchmaking
  • Provide training
  • Associate with other investors to document
    regulatory reforms
  • Interface with Bovespa on creation of Nuovo
    Mercado

19
Modest but important results since program began
one year ago
  • Five new funds created out of thirty three
    proposals MIF committed 7mm.
  • Funds had support of MIF, SEBRAE, FINEP but also
    at least 20 private investors.
  • Awareness program hugely successful MIF
    provided 1.2mm
  • Joint due diligence has resulted in a cohesive
    approach to recommending reforms in local fund
    legislation.

20
Remittances channeling informal capital flows
  • IDB estimates that 33 billion in remittances
    flow into Latin America and the Caribbean from
    international migrant workers
  • Increasing opportunities for financial
    institutions to tap into these resources
  • Opportunities for securitization of such funds
    Mexico and El Salvador
  • MIF goals improve consumer welfare by reducing
    transaction costs and channeling funds into
    formal system. .

21
Remittances MIF activities
  • Research and awareness
  • Brokering new relationships Japan/Brazil
    Ecuador/Spain US/El Salvador etc.
  • Promoting new financial products, use of
    technology and expanding outreach.
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