27256 - MicrVest II, LP

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Summary of Proposed Investment

Project Number

27256

Company Name

MICROVEST II-A, LP

Date SPI Disclosed

Sep 9, 2008

Country

World Region

Industry

Funds

Projected Board Date

Oct 17, 2008

Status

Active

Sector

Private Equity/Venture Cap Fund - Sector

Department

NonBanking & Alternative Finance

Environmental Category

Previous Events

Approved : Dec 22, 2008
Signed : Dec 23, 2008
Invested : Mar 2, 2009

Project Description

In partnership with JP Morgan, IFC proposes to invest in MicroVest II, LP (MV II or the Fund) a $70 million equity fund for microfinance. MV II is a dedicated equity fund building off the track record of Microvest I, LP a microfinance debt fund launched in 2004 with a portfolio of 25 MFIs operating in 14 countries and two regional facilities totaling $36 million.

MV II is a seven (7) year fund which will provide needed equity capital for a growing class of 20-30 Tier I MFIs operating globally, 2/3 of which are expected to be in IDA countries. MV II projects to reach up to 16 million borrowers over the life the project.

IFC’s proposed investment consists of a $10 million investment (representing 14% of the total size) in MV II. The project will be executed in close collaboration with the Private Equity & Investment Funds Department. The project will be structured and arranged by JP Morgan’s Social Sector Finance Group and managed by MicroVest Capital Management, LLC a leading fund manager in microfinance.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	10.0

Development Impact

Significant Direct Contribution to Poverty Reduction:

The project will extend finance to previously underserved groups: micro and small businesses who lack adequate sources of funding. IFC’s new investment will increase the availability of financial services to this large underserved group. This project will provide access to finance to an estimated 16.1 million borrowers over the seven year life of the project. Supporting productive small businesses will in turn stimulate growth, employment generation and poverty reduction.

Scaling Up Microfinance:

By supporting MV II, this project will help scale up 20-30 microfinance institutions operating globally (2/3 of which are expected to be in IDA countries) by providing them with commercial funding (particularly needed equity) in order to expand operations. This model should attract other private and commercial investors to do the same, thereby promoting investments in the microfinance sector.

Demonstration Effect:

The integration of local private investors (private banks and pension funds) into microfinance will show the way for other sophisticated institutional investors to enter the sector and deepen local financial markets. MV II will leverage US$60 million in private capital for microfinance.

Facilitate the Access of MFIs to Commercial Funding:

The current demand of credit by underserved micro enterprises in emerging markets far exceeds the funding provided by donors and commercial lenders. In order to satisfy the demand and unleash the productive capacity of these micro enterprises, MFIs need to tap into commercial funding sources to support their expansion.

Tier I and Tier II MFIs are growing at a rapid pace and as a result are generating a considerable demand for equity financing. As private investors increase their participation in microfinance, IFC has a key role to play in developing and structuring innovative solutions to better attract a consistent flow of private capital in microfinance. MV II perfectly fits with IFC’s microfinance strategy in that IFC’s involvement is through a collective investment vehicle that has the potential to provide needed equity infusions to up to 30 emerging MFIs (2/3 are expected to be in IDA countries). These investment vehicles have the unique ability to pool a diverse portfolio together and serve micro and small businesses in emerging markets. MV II projects to provide access to finance to 16 million borrowers. Through the participation of JP Morgan as fund arranger and co-investor, MV II has the potential to tap up to $70 million ($60 million from private and institutional investors) to finance the fund’s portfolio of emerging and established MFIs. The portfolio and pipeline includes less developed markets where commercial debt funding cannot be accessed by MFIs through local banks, particularly in the current credit crunch crisis and where local equity investors are nonexistent.

This project involves IFC support for the business of microfinance, and has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. Considering the nature of activities supported, the project will be required to:

- Develop a procedure relevant to its business process, prior to disbursement, that is satisfactory to IFC, and that ensures that all its investments are screened and processed to avoid supporting activities on the IFC Microfinance Exclusion List;
- Identify qualified persons to manage and implement the procedure
- Commit to establish a similar screening process to avoid supporting activities on the IFC Microfinance Exclusion List in MFIs in which it will take a controlling stake;
- Demonstrate commitment and resources to implementing the procedure, and take action to remedy any gaps in implementation on an ongoing basis; and
- Submit a periodic report to IFC as per a format to be provided by IFC.

Contacts

For Inquiries About the Project, Contact

Gil Crawford, CEO, MicroVest Capital Management
7514 Wisconsin Avenue, Suite 400
Bethesda, MD 20814, USA

Telephone: (301) 664-6680
Fax: (301) 664-6686

For Inquiries and Comments About IFC, Contact

General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

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