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

a larger process in which the Indonesian government was slowly divesting its holdings inthe banking industry. BRI’s was only a partial privatization, with the state retaining amajority interest in the bank. Of the $489 million 1 raised by the IPO, 61% went to buyshares held by the government, while BRI retained the remainder as fresh capital. In thethree years since the IPO its stock has increased 561% on the original price.Although the offspring of one of the largest NGOs in the world, BRAC Bank’s offeringin July 2006 was on a far smaller scale than BRI’s or Compartamos’. The company sold50% of its share capital to the public, doubling the number of shares outstanding andraising $13 million to be used for the expansion of the bank’s operations throughoutBangladesh. BRAC’s stock has increased by 619% since the offer.In contrast to BRI and BRAC Bank, none of the shares sold by Banco Compartamos inApril 2007 were offered by the firm itself. Rather, the 30% of shares outstanding soldwere part of a secondary offering, providing liquidity to existing investors. The firmreceived none of the proceeds. The offering opened at 12.8 times the book value and,within six months, saw a 48% increase over the initial price.Unlike the others, Equity Bank, a top-performing MFI in Africa, did not actually have anIPO, but rather a listing of stock that was already held by many of their clients andemployees. Its listing was made in order to offer these shareholders the benefits of thestock market. The primary benefit was the development of a market for Equity Bankstock, both allowing existing shareholders to buy and sell at will as well as opening theopportunity to buy to any new investor. The market discipline associated with the listingfocused the bank’s internal energies on improving effective governance and onpositioning Equity Bank strategically in capital markets.Despite their differences, however, the four institutions share similar characteristics thatsuggest only a few top MFIs will be able to step into the public realm. For example, eachinstitution has long-serving senior management who have guided their organizationsprofitably as well as serious boards of directors and good-governance practices. Theinstitutions have also all achieved massive scale within their respective markets,translating into a strong capital base and profits as well as positive market recognition.Moreover, their potential for future growth is quite high. In addition, the four have soughtto anticipate and address their clients’ needs through an increasing number of qualityproducts and services, and they, for now, are respecting the components of the doublebottom line. For more on the qualifications necessary for a successful capital-marketlisting, please see the summary and conclusions of section one.In addition to these qualifications, however, a sophisticated or semi-sophisticateddomestic capital market appears necessary for an institution to perform well through anoffering. It is no coincidence that three of the IPOs listed on relatively active stockmarkets: Jakarta, Mexico and Nairobi. Even though BRAC Bank’s stock has shownphenomenal growth, the overall amount raised was significantly lower than that of the1 Please note that all amounts, unless otherwise indicated, are stated in U.S. dollars.4