The Nobel Peace Prize awarded in October to microfinance pioneer Muhammad Yunus and his Grameen Bank shone a spotlight on the laudable, and profitable, practice of making tiny loans to businesses in developing nations -- and whetted the appetite of institutional investors. Until recently, however, there were few conduits to channel funds from big investors in developed countries to the myriad microlenders around the world.
Diane Smith thinks she has a solution. A former portfolio manager at London-based Electra Private Equity, Smith, 51, joined the not-for-profit Grameen Foundation as head of its capital markets group last month. She plans to draw on her experience in structuring private equity investments in the U.S. and Latin America to help microlenders tap the international capital markets through structured vehicles such as collateralized loan obligations.
“We’d like to become the microfinance institutions’ investment banker,” she says.
The strategy represents a new direction for the Grameen Foundation, which is independent of Grameen Bank but has Yunus on its board. Since 2005 the foundation has been providing loan guarantees backed by outside money to microlenders such as Bolivia’s Pro Mujer, with $9.3 million in assets, and Morocco’s Fondep, with $16 million. Smith is planning to expand the program to include bridge loans and guarantees of securitization trusts.
Microfinance has seen only a handful of structured financings so far. In April, Swiss money manager BlueOrchard and Morgan Stanley arranged the first microfinance-focused CLO, raising $99 million for 21 lenders in 13 countries. In July, Citigroup led the first receivables securitization, raising $180 million for BRAC, a Bangladeshi lender.
Smith believes such transactions are bound to proliferate. “There’s so much demand for microfinance, the capital markets are the only solution,” she says.
