MicroVest is an asset management company that provides private debt and equity capital to financial institutions that serve micro, small and medium sized businesses. The following sections provide an overview of our portfolio companies, our due diligence process and the industry initiatives we support.
What are the characteristics of our portfolio companies?
MicroVest seeks to work with low-income financial institutions (LIFIs) that provide ethical and sustainable financial products and services to under-banked populations. Types of LIFIs include:
The term ‘microfinance’ is increasingly used to refer to an array of financial products, including credits, savings, and insurance, tailored to meet the needs of low-income individuals, particularly women. Microfinance institutions (MFIs) provide these services and include a variety of organizational types: non-government organizations (NGOs), cooperatives, credit unions, and commercial banks.
SME Finance – Banks
Small and medium enterprises (SMEs), often described as too large for microfinance but too small for corporate banking, represent an important economic sector in any country. SMEs are the engine of development and an indicator of a thriving economy. However, SMEs in emerging markets have traditionally lacked access to capital, which restrains their ability to grow. In recent years, this has begun to change, as emerging markets banks are increasingly servicing the particular financial needs of SMEs.
SME Finance – Factoring
Factoring, the transaction of a business selling its receivables at a discount in return for immediate capital, is an important tool for small businesses that are subject to funding limitations and timing mismatches. For example, a small company that provides employee uniforms may need to manage a 75 day difference between needing to purchase materials and then collecting on a sale. Local banks will not provide a line of credit or revolving loan, leaving the company with insufficient cashflow to finance growth of the company. Factoring the sales receivable allows the company to secure the needed funding before the receivable is due. Typically, the receivable is to a large company that may be considered a better credit than the seller.
Full Service Banks
Full service banks, recognizing the growth potential of underserved populations, are assuming an increasing role in the microfinance and SME markets. These banks can offer financial stability, widespread network branches, and specialized services such as remittances payments, foreign exchange and specialized lending products. MicroVest invests with a small number of full service banks that we feel have a clear focus and a demonstrated track record in successfully servicing low income populations and small businesses.
How do we select our investments?
The effectiveness of MicroVest’s due diligence process begins with its team. MicroVest’s team is comprised of financial professionals with a deep understanding of cultural nuances of the markets where it invests. Team members are organized regionally to provide consistent service to each portfolio company across our funds.
MicroVest’s due diligence program is anchored around the “Three C’s”: Country, Character and Credit. Investment policies and procedures are designed to apply commercial best practices to the analysis of Country and Credit risk. Character analysis focuses on the governance and ethics of the institution, from the Board level to the loan officer. MicroVest believes character due diligence is particularly important in countries where regulation and transparency rules are still developing.
The multi-stage due diligence process ensures a deep understanding of the institution’s business model, commitment to its mission, and underlying credit risk factors. Ongoing portfolio management provides a basis for feedback to institutions and creates a working environment conducive to building long-term business relationships with portfolio companies.