Microfinance and Capital Markets - Council of Microfinance Equity ...

its NGO offering microfinance and its bank offering small and medium enterprisesfinance, while the other two offer a range of financial services through their commercialbanks. Again, these actions serve to add to the quality and branding of each bank.Technology and InfrastructureEach of the four institutions discussed have had to build an extensive infrastructure ofbranches or service offices to reach their clients. For example, Equity Bank in itsprospectus discusses moving from 31 branches in 2005 to 61 branches by 2009. Since itsfounding in 2001, BRAC Bank has grown to 18 branches and 313 regional marketing/field offices. BRI has an extensive village network that exceeded 3,900 unit desas at itspeak, and Compartamos now faces the task of converting a very extensive service-officenetwork to full bank branches if they are going to intermediate savings. Along with thisgrowth, however, comes a need to continuously invest in technology such as ATMs,credit and debit cards and MIS systems. BRI and Equity Bank have discussed theextensive investments required in MIS systems, the former as a use of proceeds and thelatter before listing. It seems clear that MFIs that want to go public will need to be up-todatetechnologically and demonstrate their ability to compete in the banking sector withthe latest in technological product and systems.The Social Bottom LineMicrofinance has received a great deal of positive publicity in the last few years. Thereseems to be an important market segment of individual investors and institutions that willinvest a portion of their funds in institutions that support a double bottom line. Initially,debt funds that could guarantee their investors a minimum social return were uniquelyplaced to tap into this market segment. We have seen this in the development ofmicrofinance funds such as Blue Orchard, the Responsibility Fund, Deutsche Bank’sMicrofinance Fund, the Calvert Social Funds and the Calvert Foundation, which alsomakes loans to and invests in MFIs. Sound MFIs with the qualifications to go public areperfectly placed to tap into this positive market sentiment and growing segment ofinvestors keen to invest in socially responsible institutions.The question then is whether IPOs and the entry of commercially funded equityinvestments make it harder for MFIs to focus on the social bottom line. The evidencefrom the four IPOs/listings discussed in this paper seems to suggest that for the momentthese institutions are respecting the financial and social components of the double bottomline. Will market pressure to maintain the stock price force these institutions into missiondrift over time? That remains to be seen and is certainly one of the risks.Outside Strategic InvestorsWith the exception of BRI, these institutions had participating internationally recognizedexternal investors take equity stakes prior to the IPO. In addition to the capital theyprovided, strategic investors such as IFC, ACCION, AfriCap, ShoreCap International ortheir respective equity funds served as an important measure of confidence in theinstitution prior to the IPO/listing. In addition, each of these institutions, with the possibleexception of BRAC, has received significant technical assistance from the donorcommunity and microfinance experts in order to ensure that their product lines, lending24