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WWB and Goldman Sachs Host Global Capital Markets Event in New York City, Jan. 16-17

Over 200 attendees took part in WWB's capital markets learning event, co-hosted by the Goldman Sachs Global Markets Institute, which took place January 16-17 in New York City. The event, titled "Microfinance and the Capital Markets: a Global Exchange," brought together institutional investors, microfinance practitioners and other experts to focus on capacity building for MFIs in the capital markets and on creating linkages between MFIs and international debt and equity investors.

"The event was a tremendous success," said Mary Ellen Iskenderian, President and CEO of WWB. "Microfinance practitioners significantly increased their knowledge of the capital markets and of the requirements of institutional investors, and investors learned a great deal about the feasibility — and risks — of the microfinance investment class. Once quite separate, these two worlds are rapidly coming together as the growth of microfinance attracts large amounts of investment capital. Forums like this one help investors and MFIs develop an essential tool for building successful partnerships: a common language with which to speak to one another."

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Highlights of the first day included a keynote address by Eugene Ludwig of Promontory Financial Group on the development and current state of the capital markets. Ludwig asserted that capital markets deals are cutting-edge not only in microfinance, but on Wall Street as well. While there is currently significant momentum behind capital markets transactions in microfinance, successful navigation of this largely uncharted terrain will require both MFIs and institutional investors to increase their knowledge of each other's spheres. Also featured were presentations by MFI managers who have successfully rolled out capital markets transactions, including Clara Serra de Akerman of FWWB Colombia and Ricardo Gordillo of Mibanco, Peru, and hands-on training for MFIs entering the capital markets led by experts in the field such as Chris Canavan of Goldman Sachs, Jorge Valderrama of Bancolombia and Fernando Alvarez of Banco Compartamos.

Brian Koeller, State Street, Heather Kennedy, Goldman Sachs, Scott Budde, TIAA-CREF, Terri Ludwig, Merrill Lynch, Louise Schneider-Moretto, Women's World Banking, Socorro Acuña Otero, CMAC de Arequipa.

Day two put these lessons into practice with a mock "bond road show," in which four MFIs gave bond transaction proposals to a panel of high-level institutional investors such as Scott Budde of TIAA-CREF, Terri Ludwig of Merrill Lynch, Brian Koeller of State Street and Heather Kennedy of Goldman Sachs. "The exercise," wrote Anusha Shrivastava, covering the event in the Wall Street Journal, "was designed to train small companies from different parts of the world in how to pitch their cases to investors. MFIs, for the first time, are having to learn how to secure money from local and global investors. They are polishing their skills in presenting key factors about their organizations, management structures, growth strategies and even the risks they face."

Following the mock road show, the investor panel "awarded" USD 40 million in hypothetical investment capital to the MFI presenters, but more importantly gave real critiques of the MFI presentations, offering insight into the perspectives of institutional investors. All four investors stressed the importance of streamlining MFI messaging to fit investors' tight schedules and cover topics of specific interest to them. They called for less overall detail and more pointed opening summaries than might be provided to governmental or philanthropic audiences, and stressed the need for candid reporting on two elements investors must look at closely when appraising MFIs: governance structure and risk management.

Roopa Kudva, CRISIL, Gustavo Aristizábal, Duff & Phelps, Damian von Stauffenberg, MicroRate, Peter Shaw, Fitch Ratings.

The importance of governance and risk assessment/management was reiterated during a later panel on ratings. Damien von Stauffenberg of MicroRate cautioned against the "atmosphere of exuberance" surrounding microfinance, warning that as first-tier MFIs are oversupplied with money from public sector development agencies, international money is flowing too quickly to inexperienced MFIs. Von Stauffenberg argued that nearly all MFIs look attractive to investors using mainstream banking rating systems which analyze equity and liquidity. However, wide disparity exists among MFIs in terms of governance and risk factors most likely to affect their success or failure. The ratings panel showed that raters and institutional investors must strive to understand microfinance on its own terms — and that MFIs seeking investment capital must adapt their pitches to the perspectives of investors.

"We hope that this event has fostered deeper communication between the worlds of investment capital and microfinance," said WWB President Mary Ellen Iskenderian in her closing remarks. "Now let us take what we've learned on Wall Street and put it into practice to help MFIs better serve low-income entrepreneurs."