Yet another private equity firm, Bamboo Finance, raising funds for emerging market’s microfinance

English: ESAF Microfinance LOGO

English: ESAF Microfinance LOGO (Photo credit: Wikipedia)

Globally, microfinance is a hot topic, with many saying it is a way to lift people out of poverty, but others say, it often fails. However, even private equity is increasingly attracted to microfinance. The latest, Bamboo Finance is to launch  $200m fund, to tap US and Asian LPs for the first time for its second private equity vehicle focused on microfinance investments. In Thailand, Thansetakij, a business newspaper reports the Yingluck government is considering new measures to spur microfinancing in Thailand, but there are concerns in some quarters that the Thais, typically, are carrying a higher debt load than ever, yet there are also reports, that some sector of the economy, such as SMEs, often a community co-op, are having a difficult time getting adequate financing. Former Thai PM, Thaksin, first bought microfinance to Thailand, in the name of village fund, but was greatly criticized by Thailand’s elite establishment, as a waste of funds that could bankrupt Thailand. The village funds, are now being transformed into community banks.

Dow Jones, by Shasha Dai, reports; Yet another firm is out in the market trying to convince potential backers that investments with a positive social and environmental impact in emerging markets aren’t just in the interests of philanthropy. Those investments, if done right, can also be profitable, contends Bamboo Finance, a Luxembourg firm. Bamboo is seeking to raise a $200 million second fund after fully investing its debut vehicle, the $195 million Bamboo Financial Inclusion Fund that closed in 2008, said founder and Chief Executive Jean-Philippe de Schrevel.

Bamboo Finance has been meeting with existing and prospective investors and expects to hold a first closing on the new fund on around $60 million by early 2014, Mr. de Schrevel said. Formed in 2007, Bamboo Finance targets banks, microfinance companies and other financial institutions lending to low-income families, primarily in emerging Asia, Latin America and Africa, and counts Dutch pension system ABP as an anchor investor.

Keeping the new fund’s size the same as that of the prior fund helps Bamboo Finance focus on its strategy of acquiring minority stakes in microfinance companies that give the firm governance rights and board seats. Bamboo Finance will then help the targets transform into full-fledged banks that provide more complete services to low-income families, said Mr. de Schrevel. In emerging markets, he explained, low-income families typically don’t otherwise have access to banking or loan services. Microfinance outfits, many of which were started as nonprofit organizations, to some extent stepped in to fill that void.

Many microfinance companies have built lending networks in poor communities and have track records and loan portfolios sufficient to show their growth potential, Mr. de Schrevel said. Those companies are well-positioned to receive funding from investors, with the goal of converting them into regulated banks that can take deposits, make and service loans, and provide other banking services to borrowers, he said. After a few years, the investments will typically be ready to be acquired by regional financial companies.

One case in point is XacBank in Mongolia, in which Bamboo Finance invested in 2008, said Mr. de Schrevel. With a loan portfolio of about $395 million, Xac has shifted its focus over the years away from microfinance to incorporate lending to small and midsize businesses, consumer lending and mortgages, according to Bamboo’s website. The bank also invested in mobile banking technology to serve its customers more efficiently.

Xac’s growth has enabled Bamboo Finance to exit its position in the bank through a pending sale of its equity stake to a Japanese leasing company. The deal is slated to close in a couple weeks, said Mr. de Schrevel, who declined to disclose the identity of the acquirer.

Upon close, Bamboo Finance expects to receive two times its money in Xac, representing a 23% gross internal rate of return, said Mr. de Schrevel.

Meanwhile, the firm is preparing two other potential exits, from investments in Peru and Mexico, respectively. All told, the firm anticipates that by the end of this year, it will have returned 40 cents on $1 of commitment to its maiden fund, according to Mr. de Schrevel. The dual goal of social and financial returns is a common strategy for firms targeting low-income communities in emerging markets. Vietnamese outfit VinaCapital Group, for instance, is raising what it calls a social impact fund that aims to invest in such projects as training centers in Vietnam that turn at-risk street youth into caterers; water-purification projects in Cambodia that charge low fees from poor households; and student loans to Myanmar candidates pursuing master of business administration degrees.

International Finance Corp ., the World Bank Group‘s investment arm, meanwhile, has long been active funding microfinance and other development-oriented programs in emerging markets.


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