A Giant Stumbles: Why did investors abandon Blue Orchard?

Microfinance Focus, 10 December 2012; microDinero (Spanish), 12 December 2012

Over the past 18 months, one of the microfinance sector’s largest and most prominent funds, Blue Orchard’s Dexia Micro-Credit Fund (recently renamed Blue Orchard Microfinance Fund), saw a major outflow of investor capital, with some $268 million or nearly 50% of the fund’s peak value having been redeemed.  The scale of these outflows is unprecedented in the sector.  For years, investment capital largely flowed one way:  in.  The exit doors were there, but rarely used.  That is no longer the case.  The pioneer of the microfinance investment industry has now crossed another milestone in the industry’s development.

Like Dexia, many microfinance funds (commonly referred to as Microfinance Investment Vehicles or MIVs) are subject to unscheduled redemptions.  For those funds, their investors, as well as others in the sector, BlueOrchard’s experience holds important lessons, and it is those lessons that this article hopes to convey. more →

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Categories: microDinero, Microfinance Focus

Repairing a Tarnished Image: a Plea for Transparency in Indian Microfinance

MicrofinanceFocus, 28 March 2012

Last month, the headlines of the world’s papers read déjà vu.  “Suicides in India linked to microfinance debt.”  “SKS Microfinance implicated in farmer suicides.”  The headlines may have differed, but the article was one and the same, penned by Erika Kinetz of the Associated Press.  SKS was appalled, calling the report “libelous” and “scurrilous.”

For what it’s worth, the damage has been minimal.  SKS stock slid 4.25% on the day of the article, but recovered within a few days of trading.  The slide shows little distinction from its already volatile trading pattern (Figure 1).  Of course bad news can also cause lenders and investors to take a second look, or simply slow things down.  One MFI manager told me of exactly this very reaction on the part of an Indian bank in the immediate days after the AP article.  But the story got relatively little press in India, and no follow-up of significance.  By now it’s reasonable to say that the microfinance sector in India can breathe a sigh of relief. Seeing bad news get swept back under the carpet can be quite satisfying, even if the stink remains. more →

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Categories: Microfinance Focus

Preparing for Failure: Strategies for Challenging Times

MicrofinanceFocus, 8 November 2010

The crisis in Andhra Pradesh has highlighted how exposed MFIs are to mass non-payments.  Industry insiders have suggested that even some of the largest MFIs simply might not survive if the crisis is not resolved soon.  And if that were to happen, is the industry prepared to deal with the process of unwinding one of these giants?

The top MFIs in India are large by any standard, with assets in the multiple $100s of millions, most of which are held in the form of outstanding microcredits.  Once an MFI is hobbled to the point that it cannot survive as a going concern, what happens to these assets?  Experience from other MFIs suggests that prospects for recouping them are not good. more →

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Categories: Microfinance Focus

SKS Microfinance journey to IPO: An inside story

Co-authored with Vikash Kumar; MicrofinanceFocus, 12 May 2010

SKS Microfinance, India’s biggest lender to the poor, is soon to become the nation’s first microfinance company to list on the Stock Exchange. In the past 10 years, it has evolved from an NGO to a public limited company and has set many benchmarks for the industry to follow. Microfinance Focus presents a comprehensive look at this journey, tracing it from the company’s roots in the late 90s through the final months leading up to the IPO.

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Categories: Microfinance Focus