I&P's activities: Investment criteria
After a preliminary phase of contact-making and documentary study, I&P's first step is an in-depth evaluation mission. This is crucial for understanding the institution, validating its development plan and doing necessary due diligence. It is equally crucial for developing a relationship of mutual confidence with the MFI's management. This is particularly important in view of I&P's intention to be an active participant in governance and to play a strategic partnership role.
Subsequent steps in the investment process are highly flexible and adapted to the specific requirements of each MFI:
If the institution is incorporated as a commercial entity, I&P can invest:
- by taking an equity stake, in which case it participates fully in the governance of the institution, playing its role as a professional shareholder and director;
- by providing subordinated loan capital. The subordinated character of the investment in this case preserves the institution's capacity to mobilise classic senior bank debt.
If the MFI is established under co-operative or other associative statutes, I&P's participation is exclusively limited to subordinated medium-term debt. In this case the loan agreement will aim to provide I&P with the means of supervising and controlling key elements of the MFI's management and strategy.
As a lender, I&P takes a pragmatic approach to the choice of currency. When circumstances permit, and hedging mechanisms can be put in place, I&P can accept all or part of the exchange rate risk.
I&P's loan interest rate policy is strongly conditioned by the choice of investment type and currency. Generally the aim is to be in the lower range of rates charged by competitors (despite the higher risks associated with subordinated status and medium-term maturities).
I&P complements the role of local banks. Lacking both knowledge of microfinance and long-term resources, the banks often limit themselves to short-term lending. Conversely, I&P is not in the business of treasury management. It takes on a term engagement, allowing MFIs to build development strategies over several years.
The two roles dovetail together, allowing MFIs to turn to I&P for long-term resources and the banks for their shorter-term requirements.