Responsible investor challenge: M&As, EXITS, IPOs

  • Edmund HIGENBOTTAM, Verdant Capital
  • Mona KACHHWAHA, Caspian Impact Investment Advisors
  • Rohit SUBRAMANIAN, CDC Group
  • Tim NUY, MyBucks
  • Sam MENDELSON, Responsible Exits project e-MFP, NpM & FIEC


Edmund HIGENBOTTAM, Verdant Capital, explained that the panel would approach responsible investment challenges in terms of M&As, Exits and IPOs, bringing perspectives from investment banks, FinTech, microfinance, investment management and development finance.

Tim NUY briefly presented MyBucks, a FinTech company which has more than 1.5 million customers and a loan book of EUR 55 million. MyBucks achieved organic growth by using mobile platforms and loan processing technology, while capitalising the business through IPOs (Frankfurt, Zimbabwe) and raising funds on local bond markets. Recently, MyBucks acquired four East African banks from Opportunity International. These acquisitions provided MyBucks with a large new customer base and banking licenses in key regional markets. Using its technology, MyBucks was able to reduce costs, reach out to new clients and provide them with additional products more efficiently, while also improving customer loyalty. At the same time, Nuy clarified that this offered Opportunity International a responsible exit with a good outlook on improving financial inclusion in a sustainable way.

Key focus areas during integration were business models (aligning mission / vision, assessing markets served and products offered, and leveraging MyBucks technology to simplify distribution) and operations (integration with MyBucks IT and assessing human capital). A key challenge was to change the performance culture. This turn-around, which included lay-offs and new hiring, was conducted quickly in order to limit disruption. Moreover, a strong buy-in at senior management level provided continuity during the operation. This allowed MyBucks to bring the banks back to profitability in two to three months. Nuy concluded that strategic acquisitions, complemented by strong integration plans allow FinTech companies to scale up rapidly in Africa and reach out to the financially excluded. FinTech also has potential to drive SME and agricultural development by being able to process non-traditional information.

Nuy clarified that, apart from operations in Kenya, PAR, clients served, interest rates and credit provision remained largely the same. The main changes were in implementing technology to reduce operational costs and serve more clients with greater efficiency. He noted the strong synergies in terms of rolling out across a big (performing) customer base and converting these to digital solutions. However, local leaders are needed to make such a change.

Mona KACHHWAHA, from the Caspian Impact Investment Adviser, looked at the evolution of the Indian microfinance sector. She explained that microfinance has existed for 25 years in the country, but took off due to "bank-linkage" programmes and the "priority sector" classification by the Reserve Bank of India (RBI). This set a process of commercialisation in motion with a massive increase in lending to MFIs, including by equity funds. She explained how the last ten years have seen major highs and lows. Both the Andhra Pradesh (AP) ordinance and demonetization (in particular in a cash-based economy like India) deeply affected the industry, while new financial service provider categories (NBFC, Small Finance Banks) further changed the landscape in terms of portfolio growth and diversity of providers.

Kachhwaha also showed the changing investment landscape, and pointed out how impact funds and DFIs stepped in during the post-AP period. In addition, recent IPOs, better regulation and understanding of inclusive finance have made exits easier to project and execute. Data from a McKinsey study on responsible finance exits showed a wide range in returns (IRRs of 2-46%). Moreover, most exits are partial, which requires investors to redefine their role and consider their responsibility in terms of continuity for the investee. She explained that although an IPO or new investor changes the Board composition, the mission is ensured in India through the priority sector designation. Moreover, MFIs need to establish their own strategy after an IPO. Furthermore, she explained how investors need to be patient when external events hit the sector and manage their own expectations.

Rohit SUBRAMANIAN introduced CDC as a development finance institution offering equity and debt investments for inclusive finance in Africa and South Asia. As CDC's portfolio matured, exits came more prominently on the agenda and an exit matrix was developed to guide decision making on whether and how to exit (IPO, secondary sale).

A key question was whether you would reinvest at today's terms, looking at potential impact in relation to the investment size. Can you expect further growth in terms of impact and scale? Furthermore, Subramanian raised the question of additionality; for example: is CDC needed as a shareholder (financial, governance or impact)? Liquidity timing needs to include management perspectives on bringing in new investors. Finally, he stressed the importance of an exit story to justify why they exit, how future impact is ensured and whether the investee is in a better position from the time of investment.

He questioned whether an IPO is the best exit for impact investments in inclusive finance, for example in terms of investor engagement on the double bottom line and the potential trade-offs of reaching impact.

Sam MENDELSON presented research by the e-MFP, NpM & FIEC Responsible Exits project. The project looks at buyer selection in a responsible equity exit to better understand industry thinking on a sellers obligations, what it means to act (ir)responsibly in an exit and how it relates to fiduciary obligations. He stressed the importance of such questions in light of diversification of financial service providers and investors, and the interest of buyers outside of the impact investment space.

Desk research was combined with interviews and a quantitative and qualitative survey of investors, the result of which Mendelson presented. These will be followed up by interviews and case studies. He showed that, in an equity sale, the most important buyer-selection consideration is reputation. Interviewees also looked specifically at past actions of the buyer. Much less weight was given to written statements (covenants, commitment letters) showing that "actions speak louder than words". In terms of criteria, the financial offer took precedence, followed by reputation (also outside the inclusive finance space) and resources. The social offer, a prior relationship with the buyer and close proximity to the investee, were less important. He noted that sources to check reputation are diverse, ranging from google news to specialised databases and reference checks.

In terms of type of buyer, the preference was to work with local / regional banks or institutions while sellers showed low appetite to work with hedge or venture capital funds. Mendelson concluded that a report would be shared when the final results are available in Spring 2018.


The discussion mainly focused on differences between the African and Indian context in determining exit strategies. Subramanian pointed at the difference between capital market depth, market size (and regulatory uniformity) and supporting policies. This makes IPOs a more suitable option in the Indian context. Kachhwaha added that IPOs are also keenly considered by CEOs of Indian MFIs.

A contributor from the audience added that, in the African context, strategic sales are not only more achievable but can also contribute more strongly to the inclusive finance agenda, for example commercial banks, Telcos or FinTech companies. Sellers should look more strategically at who are the players that are looking at new markets.