Grameen spreads to American investors
By Vivian Lewis
In about eight or 10 months, US investors may be able to tap into Grameen Banking and Grameen Bank, a Bangladeshi financial institution whose fame has spread well beyond its borders to become as much cult as bank.
Grameen Banking and Grameen Bank were founded by Muhammad Yunus to provide microfinance for small businesses in emerging markets, initially in Bangladesh, although the concept has spread well beyond its borders. Investors in microfinance ventures can make money because yields to investors in small loans in emerging markets are 2-5 percent higher than normal interbank rates.
Microfinance loans are not normally backed with collateral so if they are not repaid there is no recourse. However, loan loss rates in practice tend to hover around 5 percent, well below the level of sub-prime consumer finance in the US. You need expertise, however.
Grameen banking is regarded as a more entrepreneurial option than aid donations. Moreover, since many small businesses receiving loans are run by women at home, it is viewed as empowering women from the developing world. Currently, most investment in microcredit has been confined to institutional investors, with one exception.
European retail investors can invest through the Dexia Micro-Credit Fund in Luxembourg to fund microcredit. Dexia is advised by BlueOrchard Finance, established in 1998 as a Swiss specialist in managing microcredit investment funds in emerging markets. To avoid problems with the US Securities and Exchange Commission, Dexia funds will not accept US investments except in amounts of over $100,000 from qualified investors. The board must approve each investment.
However, a new US vehicle for investing in micro-finance is now being created by Developing World Markets (DWM) of Darien CT, a fund manager and investment banker, in partnership with BlueOrchard. While it is early days, Peter H Johnson, a partner, says US interest may prompt DWM to create a new product accessible to US retail investors.
While the first US vehicle is to be a bond issue early in 2004, slated to be the first time a securitization of microcredit loans is floated on international markets, it is expected to be a private placement limited to institutions only. Johnson says that he expects most of the issue to be placed with US socially-responsible funds. However, further issues of bonds with terms of six to eight years are to follow later if the first does well.
Given the level of interest, Johnson says he expects that eventually a limited partnership will be created to take up some of the bonds, in which up to 99 retail investors, putting up as much as $50,000,
may be allowed to take part. The group already manages money in Bolivia, Peru, Mexico and Nicaragua.
Non-US investors are able to contact the Dexia share registrar, First European Transfer Agent (FETA) in Luxembourg for subscription forms and fund prospectus. They are required to produce evidence of qualified investor status as well as a certified identification.
The prohibition on US investors is unfortunate, since in fact most of its shareholders are retail investors. The fund trades in US dollars, euros, or Swiss franc subfunds. A few socially-responsible funds are also buying into Dexia, which now finances 37 micro-banks in 20 countries, and indirectly some 75,000 companies. It has a portfolio NAV of over $37 million. Its US dollar asset class returned 1.54 percent in the first half of 2003, 4.1 percent in 2002; 6.78 percent in 2001, and 7.77 percent in 2000. The SICAV benchmark/target is Libor USD 6 months +200 basis points. That objective has been met since inception. Dexia also has also opened a Paris-listed SICAV, Dexia Ethique.
BlueOrchard's co-owner is Alexandre de Lesseps, 54, a great-great grandson of the developer of the Suez Canal. BlueOrchard of Geneva has about $29 million in loans out in 20 countries, with Peru, Ecuador, Nicaragua, Bolivia and Cambodia leading the way in using the vehicle and accounting for a quarter of the loans outstanding).
BlueOrchard helps banks and financial intermediaries target the microfinance industry with a comprehensive package of services designed to invest efficiently in this promising sector. They do the initial identification of and due diligence on microfinance institutions and then monitor and report on their activities and portfolios. BlueOrchard Finance manages the relationship with all actors involved and strictly follows the investment policy and guidelines of its clients.
BlueOrchard says it makes sure that the portfolios are composed of reliable and sustainable institutions. Investment advice is said to be always based on in-depth due diligence supplemented with opinions from selected field experts, specialized evaluations companies, rating agencies, networks and international organizations.
Dexia, affiliated with Banque Internationale - Luxembourg, has another 15 products and funds. It has a 6.5 percent share of the socially-responsible investment market in Europe, making it a leader in this field. Its total funds under management topped 1 billion euros by the end of 2001, and have continued growing. The Dexia Micro-Credit Fund back-office is run by Dexia Fund Services and its auditor is PriceWaterhouseCoopers Luxembourg. The minimum investment amount for non-Americans is $10,000 euros, or CHF 15,000. There is a monthly net asset valuation on date of which any investor can enter or exit the fund.
Vivian Lewis is editor of www.global-investing.com. a New York-based newsletter.
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