We believe that social impact today is correlated with profitability tomorrow. MFI
valuations are not maximized by simply increasing the size of a loan portfolio,
especially when it comes at the expense of weak underwriting. This approach jeopardizes
the financial stability of microfinance institutions which in turn negatively impacts their valuations.
As a venture capital fund making equity investments, we are looking to work with
MFIs to maximize their social impact, as this will most effectively translate into
superior financial returns for MFI shareholders through strong, sustainable growth.
Our investment strategy focuses on social return. It begins with an analysis of a MFIs existing operations, looking for ways to help MFIs to:
- Reduce interest rates charged to borrowers;
- Accept deposits and allow for client savings;
- Increase revenue by offering microinsurance products;
- Provide timely and accurate financial reports for shareholders.
To execute this strategy we use an effective combination of technology, corporate governance and insurance.
The efficiencies gained through the use of MIS software and cost savings achieved by facilitating mobile payments can significantly reduce operating costs, savings which can then be passed on to borrowers in the form of lower interest rates.
Microinsurance products offer an additional source of revenue for MFIs, while at the same time improving the risk profile of certain borrowers thus enabling them to more safely secure larger loans and provide security for both the borrower and lender.
Maximizing the social return ensures that clients grow with MFIs,
not only out of poverty, but into the ranks of a new middle class.