2010 - amazon s3 · investments that harness the positive power of enterprise for change. for those...

ANNUAL REPORT

® 2010

We endeavor to build capital markets that work for the world’sentrepreneurial poor.

We seek sustainable solutions topoverty by facilitating the flow ofinternational private capital to low-income finance institutions.

We believe commercial investmentis the best mechanism to achievemarket financial returns to our investors and positive impact on the developing world.

MicroVest is a private, for-profit,SEC-registered investment advisorheadquartered in the Washington,DC metropolitan area founded in 2003, by Cooperative for Development Relief Everywhere(CARE), Mennonite Economic Development Associates (MEDA)and Seed Capital DevelopmentFund (SCDF).

Please see page 16 for important information. 1

Table of conTenTs

2010 Milestones...........................................................................................2

Letter from the Chairman of the Board...................................................3

Letter from the Chief Executive Officer ...................................................4

The MicroVest Approach ...........................................................................5

Investment Portfolio ...................................................................................8

Social Impact Assesment: Metrics..........................................................10

MFI Profile: BZMF ......................................................................................12

MFI Profile: FMM........................................................................................13

Board of Directors/Investment Committee/Advisory Council .........14

MicroVest Team..........................................................................................15

Disclosure Page .........................................................................................16

Please see page 16 for important information.2

201050

MFIs (microfinance institutions) financed by MicroVest in 31 countries through direct investments or regional facilities

$3.1 billioncombined MFI gross loan portfolio

3 million microfinance clients served by MFIs in the MicroVest Portfolio

$74 million total MicroVest financing to MFIs at July 31, 2010

$187 million in debt and equity financing by MicroVest over the past six years

invested in 63 MFIs in 32 countries and 3 regional facilities

M i l e s To n e s


Five years from now, when we look back, I believe we willsee 2010 as the year of impact investing. The year when

impact—or pro-poor—investing took root despite the worstfinancial climate of the last 100 years. The year when demand

multiplied for investments such as those offered by MicroVest: financially sound investments that harness the positive power of enterprise for change.

For those who follow the press, it is abundantly clear that there are more articles about the theory of impact investing than the actual practice. MicroVest has been dedicated tothe practice of impact investing since our founding in 2003. We are expanding beyond traditional microfinance to invest in sectors such as education, health, housing and insurance products for those living at the bottom of the economic pyramid.

While the scale of these rapidly growing pro-poor sectors may be ultimately many timeslarger than microfinance, at the outset, our management team recognizes that it will bechallenging to identify viable deals and to structure instruments tailored to these evolvingbusinesses. We believe that MicroVest can successfully carry the investment discipline we have developed in our core microfinance business into these evolving pro-poor finance sectors.

MicroVest’s board members and I are very excited by some of the early innovations andcross-fertilization at the grassroots level. We also are excited about the burgeoning interestin our work from a variety of investors. We can expect to be busy for years to come.

W. Bowman CutterChairman of the Board

LETTEr FrOM ThE ChAIrMAn OF ThE BOArD


At the beginning of 2009, despite the worldwide recession, I was confident the future remained strong for microfinance

and, specifically, for microfinance investment vehicles (MIVs)such as MicroVest. Now, at the end of our fiscal year 2010, we can

confirm that the quality of assets in MicroVest’s portfolio remains strong and our family offunds continues to expand into new markets and products.

The economic crisis did affect our industry. The number of loan defaults rose and the growth of microfinance banks slowed. Liquidity levels at microfinance investment vehiclesincreased as demand from microfinance institutions decelerated. In the end, many microfinance institutions not only weathered the storm, but are now well-positioned to resume their growth. MicroVest is also in a position for robust, disciplined growth throughfund expansion and innovation. Our MFI partners have broadened their scope of sustainablefinance products and services beyond traditional microfinance.

As we look forward, we know that our ability to take MicroVest to scale is only as good as thefinancial returns on our investments. We remain committed to our disciplined focus on duediligence, ongoing risk assessment over the life of an investment and relationship buildingwith partners worldwide. We also remain committed to providing access to innovative andfair financial instruments that allow the world’s working poor to transform their lives.

Our work is personal. At home and abroad we receive daily reminders of the tenacity andgrit of our clients, their loan officers and the thousands of small business persons financedas they persevere in the face of electrical outages, resource shortages and threats of violence. MicroVest is and will remain a humble and committed partner in this slow, hardwork of building economies that will sustain representative democracy and inclusive social justice.

Gil CrawfordChief Executive Officer

LETTEr FrOM ThE ChIEF ExECuTIVE OFFICEr


The MicroVest

aPPRoacH

Our DNA: balancing commercial objectives and social Mission

MicroVest is a specialized asset manager with a track record of successfully linking microfinance institutions to international capital markets. We firmly believe capital marketscan be a driving force in eliminating poverty and transforming the lives of the world’s poor.

Our funds have attracted a breadth of investors, including global commercial investmentbanks, pension funds, insurance companies, high net worth individuals, foundations and international development organizations. MicroVest seeks to provide appropriate risk-adjusted returns to investors in search of a diversified portfolio with social impact.

building long-Term Partners

We are experienced in financinginstitutions at various stages,from start up NGOs to regulatedbanks. The range of senior debt, quasi equity and equityproducts available through the MicroVest family of funds enables us to customize financial solutions for our portfolio companies and buildlong-lasting relationships.

Global Investors

MicroVest Family of Investment Vehicles

MicroÞnance Institutions

Micro-entrepreneurs and Small Businesses

InvestmentCapital

Financial Returnand

Social Impact

TailoredFinancing

Financial Returnand

Social Impact

Financing forProductive

Activities

SustainableFinancialReßows


The MicroVest

aPPRoacH

investment Discipline

MicroVest conducts comprehensive due diligence to gain a full understanding of the operations, finances and culture of each potential partner and of the operating environment within each country. Our investment policies and procedures are clear and transparent, exemplifying commercial best practices. We also provide detailed feedback to assist our partners in better understanding how their finances and operationscompare within the industry. This discipline facilitates both a sound basis for deploying ourinvestors’ capital as well as providing constructive feedback to the companies we finance.

World-class team of dedicated financial professionals

We believe that the strength of MicroVest is based on a wealth of outstanding financial talent, global operational knowledge and a demonstrated commitment to sustainable economic development. Our growing team of professionals represents nine nationalities,speaks fourteen languages fluently and has unparalleled diversity of financial, operationaland cultural experience. Each MFI partner is served by a dedicated investment professionalto meet their unique financial needs in a timely and efficient fashion.

The growing MicroVest family of funds aims to provide an array of financial products to support portfolio companies’ mission in serving the entrepreneurial poor. As of July 2010, MicroVest managed US$133 million in assets (including unfunded commitments) through four fund vehicles.

004 2005 2006 2007 2008 2009 6/30/10 7/31/10

10

$6 million AuM in 2004

$133 million AuM at

July 31, 2010


How We Work

MicroVest takes a structured and professional approach to all aspects of our business: Fund Development, Due Diligence and underwriting, Investment Management, and relationship Building. Each step in the process is vitally important to ensure success in meeting the financial and social objectives set by our founders.

Fund DevelopmentAnalyzing Demand &

Mobilizing Capital

• Understand financialand social return objectives of potentialinvestors

• Identify capital needs of financial institutionsserving low-incomepopulations

• Establish links betweencapital supply and demand

• Structure appropriatevehicles to achievebalanced return

Due Diligence & Underwriting

Deal Identification & Structuring

• Identify countries andinstitutions that meetinvestment objectives

• Conduct initial countryand institutional analysis

• Perform detailed duediligence in selected institutions

• Determine social impact score

• Structure deal balancingrisk and return

Investment Management

Monitoring & Risk Management

• Closely monitor ongoingcountry economic andpolitical risks

• Observe and report onclient operating and financial performance

• Conduct regular internalportfolio and risk reviews

• Perform follow up in-country due diligenceas appropriate

Relationship BuildingCreating Value

• Assess potential follow-on investment to support long-termcapital needs of client

• Redeploy capital frommaturing investments to meet emerging demands

• Deliver return to investors and opportunities for continued partnership

• Offer innovative investment vehiclesmeeting emerging supply and demand

®


GhanaColombia

GuatemalaHonduras

NicaraguaEl Salvador

Mexico

United States

Ecuador

Peru

Bolivia

Uruguay

Paraguay

inVesTMenT PoRTfolio

AlbaniaMontenegro

Bosnia

RomaniaKosovo

Macedonia

Moldova

Croatia


Southern Sudan

Georgia

Azerbaijan

Kazakhstan

Kyrgyzstan

Mongolia

Uganda

Tanzania

Namibia

India Cambodia

Russia

Philippines

KeyCurrent Investments

Previous Investments

as of July 31, 2010

Includes direct and regional investments through MicroVest I, LP, MicroVest II, LP, and Advisory contracts with MicroPlace, Access Africa Fund LLC and MicroAccess Trust 2007.


social impact assesment

MeTRicsMicroVest has endorsed the Client Protection Principles (CPP) advocated by the “Smart Microfinance Campaign,” an initiative of the Consultative Group to Assist the Poor (CGAP)and the Center for Financial Inclusion. MicroVest supports the common goals of keepingthe client needs as the driving force of the industry and implementing six consumer protection principles:

• Avoidance of over-indebtedness

• Transparent and responsible pricing

• Appropriate collections practices

• Ethical staff behavior

• Mechanisms for redress of grievances

• Privacy of client data

We aim to support low-income finance institutions that effectively protect their clientsthrough the integration of CPP in their operations and daily practices. MicroVest has introduced a “Development Impact Scoring Model” that measures specific social indicatorsof an institution in our internal analysis. Factors such as Outreach, Consumer Protectionand Innovation are weighted to create a Social Impact Score. We believe collecting andtracking relevant social metrics will aid in our assessment of the health and sustainability of an institution throughout the duration of our partnership.

The Social Impact Score is not only about consumer protection, but also about the abilityof a portfolio company to meet its social and financial objectives through adherence to itsmission and values.

PrOFILE OF MICrOVEST POrTFOLIO AS OF JuLY 2010Snapshot

Total AuM (Including Unfunded Commitments)

Portfolio Companies (Direct and Indirect)

countries in Portfolio

Total Microfinance Portfolio

$133 million

50

31

$74 million


Women clients*

Microfinance can play a critical role in empoweringwomen and building independence through access tocapital. Women may have additional opportunities toparticipate in income-generating or self-employmentactivities contributing to family income and decisionmaking. A total of 49% of the borrowers in the MicroVest-funded MFI portfolio are women.

Deposit-Taking institutions

In addition to access to credit, access to savings is an important aspect of microfinance. As institutions mature, many transform into deposit-taking entitiessubject to regulation. A total of 24% of the institutionsreceiving funding from MicroVest are deposit-takingentities.

Productive Use loans*

The entrepreneurial poor utilize loans for productive activities such as trade and commerce, services, agriculture and small-scale manufacturing. A total of84% of loans made by MicroVest-funded institutionsare disbursed for productive uses. MFI’s also lend forconsumption (7%), housing (2%) and other purposeswhich include education (6%).

Female49%

Male51%

WOMEN CLIENTS

Productive Use84%

Other 6%Housing 2%

Consumption 7%

PRODUCTIVE USE LOANS

Deposit-Taking24%

Non-deposit Taking76%

DEPOSIT-TAKING INSTITUTIONS

*These metrics are self-reported by individual MFIs and weighted by MicroVest exposure.


Mfi PRofiles

BZMF - Beselidhja/Zavet MicrofinanceTransformation and Opportunity in Kosovo

BZMF began as a project of World Relief in 1999 with the mission to serve local communities in Kosovo. Over the past year, BZMF has experienced strong growth and now operates in 11 offices and centers serving over 2,200 clients. As one of the few institutions operating in both Albanian and Serbian dominated areas, BZMF has developed a niche market in remote regions of Kosovo with multi-ethnic communities.

Kosovo benefits from a strong microfinance enabling environment, dominated by a few large institutions. The country has a functioning credit bureau and the regulatoryframework is setting the legal path for supporting growth in the sector. Despite its provisional international status, Kosovo has a stable political environment and economywell-poised for sustaining microfinance.

In 2010, MicroVest became one of the first international commercial lenders of BZMF. Although a small institution, BZMF is led by a dynamic management team and has the potential to bring lasting change to Kosovo. MicroVest is a committed strategic partner as BZMF transforms from an NGO into a commercial entity and continues to improve its governance and credit operations.

Kosovo


FMM - Fundación Mundo MujerProgress and Outreach in Colombia

A unique blend of Indian, Spanish and African cultures makes Colombia one of the most diverse countries in South America, surpassed only by Brazil in terms of population size. A wealth of oil reserves and minerals coupled with improved security has led to relativemacroeconomic stability. Still, inequity and poverty continue to present serious challengesto long-term growth. Colombia’s well-established microfinance sector provides a vehicleto progress the national and international agendas to address these important issues.

MicroVest made its first entry into the Colombian market with Fundación Mundo Mujer(FMM), a well-respected non-profit organization. The NGO began operations in 1985 aspart of the Women’s World Banking network and is now the largest Colombian MFI in termsof outreach – serving 314,000 clients through 90 locations. FMM was one of the first MFIsin Colombia to undertake significant geographic expansion outside of its core market toreach underserved communities in the northern coastal region.

In October 2009, MicroVest structured a facility in partnership with Calvert Social Investment Foundation to provide local currency financing to FMM. As an experienced and efficient organization, MicroVest viewsFMM as a key player in the growing Colombian market. The institution demonstrated resilience during the economic downturn and revamped its lending practices and products to preserve portfolio quality. MicroVest is a dedicated partner as FMM transformsinto a regulated entity.

Colombia


W. Bowman Cutter (Chair) Roosevelt InstituteLauren HendricksCARE-USAKenneth HochstetlerUnivest CorporationJoseph IarocciCARE-USA

Tom BishopD.A. Davidson & Co.Larry ComstockMarketing Partners LLCChristopher DudaGoldman SachsJonathan GreenblattAnderson School of Management UCLACharles HarperVision-FiveChristopher KaineAonFred KittlerFirelake Capital Management, LLCCharly KleissnerK.L. Felicitas Foundation

Renate Kloeppinger-ToddThe World BankJack LavinJavlin PartnersKatherine RichardMSD CapitalJames A. Torrey (Chair)Cadogan ManagementBill UngerMayfield FundMark VisnicTouchstone CapitalMark VorsatzWealth and Tax Advisory ServicesMalon WilkusAmerican Capital Strategies, Ltd

Richard ButlerING Capital LLC (retired)Ronald CordesGenworth Financial Wealth ManagementGil CrawfordMicroVest Capital Management, LLCW. Bowman CutterRoosevelt InstituteGreg GentileGMG Investment AdvisorsJ. Alex HartzlerMEDA

John MacIntoshSeaChange Capital PartnersCalvin MillerFood and Agriculture Organization of the UNGerhard PriesSarona Asset Management, LLCCandace SmithMicroVest Capital Management, LLCBruce TullyBeehive Ventures, LLC

MicroVest Holdings board of Directors

investment committee Members

MicroVest advisory council

Carl MuñanaJ.P. Morgan & Co. (former)Gerhard Pries (Vice Chair)Sarona Asset Management, LLCR. Clair SauderMMA Praxis Mutual FundJames A. TorreyCadogan Management

Bruce TullyBeehive Ventures, LLCFrederic WallSarona GIFKim WilliamsWellington Management Co. LLP (Retired Partner)


senior ManagementGil Crawford, Chief Executive OfficerCandace Smith, Chief Financial OfficerMichael Edberg, Director of Investments

investment TeamCecelia Beirne, Portfolio ManagerDouglas Young, Senior Investment OfficerRobert Ongodia, Investment OfficerRadoil Mitov, Senior Investment AssociateSantiago Arias, Investment AssociateAndreas Eichin, Investment AssociateIris Korovesi, Investment AssociateSharini Kulasinghe, Investment AssociateMichael Mastronikolas, Portfolio AssociateVarun Parmar, Investment Associate

business Development TeamChris Laurent, Senior Business Development OfficerDavid Wedick, Business Development Associate

staffKamil Cook, General CounselSusan Blake, Director of Human ResourcesBryan Ludasher, Office ManagerMonica Slovik, Executive Assistant to the CEOTiffany Yep, Fund Administration Associate

MicroVest Team

(left to right) Gil Crawford, Michael Edberg, Candace Smith, Chris Laurent

16

DISCLOSURE PAGE FOR MICROVEST FOR JUNE 30, 2010 ANNUAL REPORT

Figures presented within this document are estimated, unaudited and subject to change.The client stories and MFI profiles detailed herein are just a few of the previous investmentopportunities that MicroVest Capital Management, LLC (“MicroVest”) has participated in. It should be noted that a comprehensive list of all investment opportunities for the previous12 months is available upon request. The MFI profiles presented do not reflect the actualperformance of any particular MicroVest product. The MFI profiles are set forth for illustrativepurposes only and are not necessarily indicative of the future performance of any MicroVestproduct. The examples of specific investments discussed herein are included merely to illustrate the investment process and strategies which previously have been utilized by MicroVest. The investments discussed herein do not represent all of MicroVest’s investmentsas of any particular date. A MicroVest portfolio will typically contain a larger number of investments than the examples set forth and accordingly, the examples are not meant to represent or be construed as indicative of the overall composition, number of investmentsor diversification of a MicroVest portfolio. The investments described herein were not necessarily made during the same quarter or fiscal year, and there is no guarantee that similarinvestment opportunities will be available in the future or that any such investments will beprofitable. Information (specifically statistics within the MFI profiles) included in this reportis (i) based on materials that are privately conveyed to MicroVest and have not been independently verified; and (ii) is subject to change at any time at the sole discretion of MicroVest.

This document is for informational purposes only and is neither an offer to sell nor a solicitation of an offer to purchase an interest in any of the funds described herein (the“Funds”). Any such offer or solicitation will be made only by means of the relevant Fund’sConfidential Private Offering Memorandum, which contains a description of the significantrisks involved in such investment. Prospective investors should request a copy of the relevantMemorandum and review all offering materials carefully prior to making an investment inany of the Funds. There can be no guarantee that investment objectives will be obtained.Any investment in MicroVest is speculative, involves a high degree of risk and is illiquid. An investor in MicroVest could lose all, a significant portion or some amount of its investment.MicroVest’s performance is subject to volatility. In addition, the fees and expenses may offsetprofits. There is no secondary market for investors’ interests and none is expected to develop.There are restrictions on withdrawing and transferring interests from MicroVest. In makingan investment decision, you must rely on your own examination of MicroVest and the termsof the offering. You should not construe the contents of the enclosed materials as legal, tax,investment or other advice.

MicroVest is committed to addressing the financialneeds of the world’s working poor through sound financialvehicles. We believe a commercial approach to investmentfacilitates the flow of capital at greater scale than the fundingcapacity of donor and government programs. Equally important, we believe this approach encourages institutionsto become more efficient and provide better services toclients, ultimately delivering the most social good over the longest span of time.

We believe that operating within a commercial framework:

• Allows the industry to reach scale

– Motivates investors to provide more capital over the long-term

– Attracts diverse sources of private capital and new entrants into the market

• Provides the working poor with access to better financial services at lower costs

– Promotes efficient and profitable microfinance institutions

– Introduces diverse products and lending methodologies

®

®

7514 Wisconsin AvenueSuite 400

Bethesda, Maryland 20814, USAWashington DC Metro Area

Phone: 301.664.6680

Fax: 301.664.6686

[email protected]

www.microvestfund.com

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