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Fund to help the poor as it reaps rich returns

By Martin Arnold in London Published: July 21 2010 22:58 | Last updated: July 21 2010 22:58

BlueOrchard, the largest private sector investor in microfinance loans, has raised $195m for a type of private equity fund that will buy minority stakes in microfinance lenders to finance their expansion and modernisation. Hailed as a way for investors to make attractive returns while lifting people out of poverty by lending them small sums of money for their businesses, microfinance has become a $44bn market, according to the Microfinance Information Exchange. Jean-Philippe de Schrevel, co-founder and chief executive of BlueOrchard Investments, said the fund would provide capital and expertise to help microfinance institutions expand and upgrade their operations. There is now a need for more capital at many microfinance institutions to leverage themselves and expand, Mr de Schrevel said. I hope to attract other investors to the sector so that microfinance institutions can become an asset class in themselves. He said some microfinance lenders needed capital to improve their corporate governance and risk management systems so that they could become regulated banks. This would allow them to raise more money from local institutions as well as not-for-profit groups. BlueOrchard, which aims to take board seats at the companies it invests in, will also provide the resources for microfinance lenders to acquire some of their rivals in countries where there are too many small actors. Targeting a net internal rate of return of 20 per cent a year, the BlueOrchard fund is the biggest of its kind and has attracted a $34.5m commitment from Aabar Investments, the Abu Dhabi sovereign wealth fund. Several rival microfinance fund managers are planning to raise similar funds, including Belgiums Incofin and Germanys Finance in Motion. The potential for such investments has been underlined by the trend for microfinance lenders to list on the stock market. SKS Microfinance, Indias biggest lender to the poor, is planning a $350m initial public offering this month, and Mexicos Compartamos floated in 2008. BlueOrchard has invested $50m of its fund in 13 microfinance groups and committed a further $40m to buy stakes in other groups and for follow-on investments. Its investments include Asmitha Microfina in India, which has lent $315m to more than 1.1m women; Banco FIE in Bolivia, which has lent $320m to 260,000 clients; and XAC Bank in Mongolia, which has a $160m loans portfolio. The groups in its portfolio have a low default rate, with only 3.7 per cent of their loan portfolios in arrears of 30 days or more.
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