Verdant Capital commissioned in October its first survey of investment professionals working for leading Microfinance Investment Vehicles (“MIVs”) investing in Africa.
The survey results support our assertion that growth in senior debt funding available for microfinance/inclusive finance institutions has positively contributed to their growth, but also to the rising leverage levels for the sector as a whole.
The key takeaways from the survey:
- 70% of participants responded that the amount of MIV funding available is growing. This response was consistent for the last and next twelve months prospectively, as well as for funds available to invest globally and also those specifically allocated to Africa.
- 50% of respondents confirmed that capitalization ratios for their MFI investees are lower than 12-18 month ago (vs. only 8% responding that those same ratios were higher).
- In response to the question on what was the single most important reason for investments rejected in 2019, the two most common answers were: (i) NPLs too high (46%), and (ii) capitalisation ratios too low (29%). 71% of participants responded that low capitalization ratios were a key influential factor in rejected investments.
- We asked what changes in the microfinance “ecosystem” would be most important in facilitating the deployment of more senior debt (allowing for more than one answer). The two most common responses were (i) increased availability of currency hedging solutions (71%), and (ii) more sources of equity / hybrid capital available to MFIs (54%).
- Notwithstanding the growth in pools of capital for MIVs to invest, there are several headwinds for investing in African MFIs, with respondents reporting: higher NPLs (58%), lower net interest margins (50%), and higher hedging costs (54%).
MFIs interested in more information on the survey should please email a member of the Verdant Capital team.