Sachin S. VANKALAS started the session by stating that investors generally do their own origination, due diligence and portfolio management. He added that larger MFIs are faced with sometimes up to 50 different lenders and a similar amount of information requests and due diligence visits. Vankalas then raised some questions for the panellists: Is that in the interest of the client? Do investors reach scale? How can microfinance investors jointly finance larger financial institutions? Is there space for more syndications, club deals, or the use of online platforms like Plumseeds?
After a brief introduction about the panellists and their organisations, Vankalas gave the floor to Irakli ZATIASHVILI from Credo, an MFI-turned Bank from Georgia, and asked him about his experiences in dealing with a pool of international investors with different due diligence processes.
Zatiashvili started off by indicating that, as a market leader in Georgia, they have a broad base of about twenty investors, ranging from MIVs to IFIs and DFIs. Consequently, Credo gets at least twenty due diligence and monitoring visits a year, which requires a lot of time and resources. Zatiashvili said that there are different reporting standards between DFIs and MIVs. DFIs require quarterly reporting, while MIVs require it monthly. Also, MIVs tend to ask more questions after receiving the reports. Although the substance of reporting is similar, the format is different, meaning that Credo must accommodate all reporting efforts.
Zatiashvili concluded that it would be helpful if all investors had a common platform, where MFIs could just upload one comprehensive report. Regarding due diligence, he would like to see investors share information amongst themselves, so processes do not have to be duplicated.
Vankalas turned to the other panellists and asked them how they usually approach MFIs like Credo, and what they require from them. Florian GROHS explained that Symbiotics has internally standardised its reporting for all the funds they manage, after which he presented Plumseeds. Plumseeds is an online platform that provides information about impact bonds on financial benefits, the social impact and the associated risks. It allows other investors to co-invest in the bonds on offer, which reduces the due diligence burden as all investors have access to all monitoring information.
Frank STREPPEL replied that it makes sense to join Plumseeds but that there is a need to find more common ground. He explained that many requirements from Triodos Investment Management come from their investors whom again have their own regulations and requirements which they impose on Triodos. As such, Plumseeds should address the needs of other parties in order to satisfy all, Streppel argued.
Annemieke MOKVELD agreed that reporting formats for MIVs, IFIs and DFIs could differ significantly. She argued that the main issue is that all partners want to invest in impact, not just in return. Reporting on impact, she continued, is much more complicated, as it goes beyond numbers and raises questions on what, for instance, gender investment exactly is. The existence of different definitions explains why MFIs get slightly different reporting requests from different investors.
Claudia BELLI explained that BNP Paribas reports according to banking regulations, but that they monitor social performance through the social audit tool SPI4. This tool includes all the international best practices in terms of social management. In 2017, the BNP Paribas Group launched a program to train the “Leaders for Tomorrow”, future managers of the Bank, on how to conduct SPI4 audits and assessments. It requires an intensive training and afterwards the trainees spend one week at the MFI premises and provide the full SPI4. It will then be available for use for any lender and investor since it brings a standardised way of reporting, said Belli.
Streppel added that different reporting requirements are also a result of the different regulatory and tax environments in which investors move. Streppel explained how, even though FMO and Triodos Investment Management are both subjected to the same Dutch law, they still interpret elements of that law slightly differently. Both organisations are now collaborating on aligning these views and understandings of the law, explained Streppel. If you can align on a country level, he argued, the questions from investors to MFIs will at least follow the same criteria and perspective, which results in more standardised reporting requirements.
An audience member then asked the panellists if they believed they can reach synergy together by agreeing on what the core elements of monitoring processes should be. One audience member commented that, with these elements as a basis, there is room for each individual organisation to add their own. Mokveld said that it is key to understand what is needed and then prioritise these needs. In general, she said, institutions need to be more flexible to reach an efficient syndicate.
Another audience member shared how his organisation, the Grameen Credit Agricole Foundation, does joint due diligence visits with other likeminded investors. During these visits, every organisation can ask its questions, while everyone writes his/her own report afterwards. He argued that, if you manage to do things systemically, this will lower the burden for MFIs.
A member of the audience suggested that MFIs could also decide to inform investors that these are the reports they deliver to their big lenders, so this is what they can deliver to other investors as well. Streppel agreed, as it shows that MFIs are in control of their own processes. Though, he added, these reports need to be of a high standard. If that is the case, he continued, this could also provide lenders with additional time benefits. It is up to an investor then to do a gap analysis of the report and decide whether everything is covered, and in case some elements are missing, only then decide to plan a visit to the MFI.
As a final question, Vankalas asked the panellists to look ahead 5 to 7 years and think of what the greatest contribution of MIVs in advancing financial inclusion would be. Streppel answered that by deploying digital solutions well, outreach can be larger as well as lowering operational costs. So there is a need to cooperate and be more efficient, he stated. Moreover, MIVs can, besides providing credit loans, be seen as long-term partners in development. Grohs added that MIVs, in addition to investing money, also contributed heavily to creating transparency within the microfinance sector, which helps to stimulate future growth of the sector.
Zatiashvili concluded that working with MIVs and DFIs both have opportunities and challenges. MIVs are convenient as they tend to be more flexible and are based on long-term relationships. DFIs tend to ask for more requirements which takes more time, but they provide large credit sums and technical assistance, which help MFIs to become more institutionalised, such as on digitalisation.