Microfinance Borrowers Gain Access to Impact Capital
By Sunny Lewis
ZURICH, Switzerland, August 8, 2019 (Maximpact.com News) – From its head office in Zurich, the international impact asset manager responsAbility Investments AG has closed a US$175 million securitization of loans to microfinance institutions and those that finance small and medium-sized enterprises (SME) in emerging markets.
The proceeds will be used to fund financial intermediaries providing capital to 30,000 small businesses and 5.6 million microfinance borrowers. Eighty-one percent of the borrowers are women.
The transaction pools the borrowing needs of 26 micro and SME finance organizations, allowing them to achieve the scale necessary to access global capital markets.
“This securitization shows that the fast-growing microfinance and SME finance space in emerging markets has now reached a maturity that allows it to access financing from mainstream capital markets,” commented Thomas Müller, co-head Financial Institutions Debt at responsAbility.
At the same time, the transaction enables investors to contribute to financial inclusion in developing countries, earn a commercial return, and diversify their exposure across multiple borrowers and geographies.
Denominated in US dollars and with an expected maturity of three years, the securitization provides investors a choice of three different risk return profiles -senior, mezzanine, and junior – in a listed, transferable bond format.
The senior and mezzanine notes earn fixed interest rates but junior note returns will depend on performance of the underlying loan portfolio.
Key investors in this transaction include the Overseas Private Investment Corporation (OPIC), the U.S. government agency, which provided the initial capital necessary to mobilize the private institutional investment in the deal, and Alecta, the fifth largest occupational pension provider in Europe, which is investing in the essential risk capital.
“OPIC is proud to partner with responsAbility to expand access to the financing of micro-entrepreneurs and small business owners – especially women – who need to grow their businesses, create jobs, and help their communities thrive,” said Tracey Webb, OPIC vice president for Structured Finance and Insurance.
OPIC is a self-sustaining U.S. government agency that helps American businesses invest in emerging markets. Established in 1971, OPIC provides businesses with the tools they need to manage the risks associated with foreign direct investment, fosters economic development in emerging market countries, and advances U.S. foreign policy and national security priorities.
OPIC helps American businesses gain footholds in new markets, catalyzes new revenues and contributes to jobs and growth opportunities both at home and abroad. OPIC fulfills its mission by providing businesses with financing, political risk insurance, advocacy and by partnering with private equity fund managers.
Impact investing firm Calvert Impact Capital brings U.S. private capital into the deal.
Calvert Impact Capital says it invests to create a more equitable and sustainable world. Calvert raises capital from individual and institutional investors to finance intermediaries and funds that are investing in communities left out of traditional capital markets. During their 24-year history, they have mobilized over $2.5 billion of investor capital.
Songbae Lee, director of investments for Calvert Impact Capital, said, “This deal has great potential to serve as a template for making microfinance – and other impact investing deals – more accessible to a range of investors in the future. We’re excited to help scale responsAbility’s microfinance platform and ultimately, get more capital flowing to the communities that need it most.”
responsAbility Investments AG is the originator and servicer of the loan portfolio. JP Morgan acted as arranger and placement agent.
“This is an area of increasing focus for fund managers globally and applying capital markets technology to traditional impact investing creates the potential to open this sector to a wider range of investors,” said Eric Wragge, managing director, Securitised Products Group at J.P. Morgan.
“We are very pleased to have helped facilitate this flow of investment to emerging economies, where financial inclusion can make such a difference in the lives of small-scale entrepreneurs and their communities,” Wragge said.
With $24 trillion of assets under custody and $444 billion in deposits, J.P. Morgan’s Corporate & Investment Bank is active across banking, markets and investor services. Corporations, governments and institutions conduct their business in more than 100 countries.
Alecta manages occupational pension plans for 2.5 million white collar employees and 35,000 businesses in the private sector in Sweden. Alecta is a mutual company, with the mission from the clients and owners to ensure that the occupational pension grows, while working to ensure that more people can benefit from the security which an occupational pension provides.
”Alecta actively manages approximately US$100 billion, at an extremely low management cost. To meet our high sustainability standards and really make an impact with maintained low costs, these are the kind of partners and product we’re looking for,” said Magnus Billing, CEO of Alecta. “This type of security allows Alecta to invest capital extremely efficiently.”
responsAbility manages US$3 billion of assets through a range of investment vehicles that provide private debt and private equity to some 540 companies with inclusive business models across 90 countries.
“This transaction reopens the impact securitization market and paves the way for further issuance in pursuit of the 17 Sustainable Development Goals,” commented Desiree Fixler, senior consultant to responsAbility, and managing director, ESG Investing at Zais Group.
Gevorg Tarumyan, CFO, deputy general director of Ameriabank, an Armenian bank on the receiving end of this financing, said, “We are delighted to be part of a global pool of quality microfinance and SME finance players, participating in an innovative, global capital markets transaction managed by responsAbility, arranged by JP Morgan, and invested in by OPIC and other high quality investors in pursuit of the Sustainable Development Goals.”
Featured Image: The High-Efficiency Horticulture and Integrated Supply Chain Project will support the development of 30 hectares of climate-controlled greenhouses equipped with drip irrigation systems in Yerevan to produce tomatoes and bell peppers. The example of a small business is not actually funded by the new securitization at this time. June 8, 2019 Yerevan, Armenia (Photo by Asian Development Bank) Creative commons license via Flickr