Microfinance Focus, October 15, 2010 (Colombo) : Addressing the conference to give an investor’s perspective, Matteo Marinelli, Senior Investment Analyst of Blue Orchard, said, “It is not surprising for an investor to talk about client protection. I am based in Cambodia and in charge of the portfolio from Southeast Asia. Let me first share our investor company background. We are an asset investor, our mission is to bridge the gap of capital markets and MFIs. 100% of our investment is from capital markets: 50-60% from institutions and 40% from private banking clients. We have over a billion dollar of investments in 140 MFIs in more than 40 countries. I think we have a good track record, so far, we have not seen any defaults but I think it is changing. We are experiencing some workouts in the history of microfinance. Some lenders are showing signs of something new and as Leah has mentioned, indebtedness. We deal with loans, equities, guarantees etc. Most of our portfolio is in India, and we are now closing the first few deals in Sri Lanka and Nepal.
As investors, can we implement client protection principles into our daily operations? Let me introduce Blue Orchard’s 4-step investment process and risk management: Qualification of investment, Due diligence, Credit decision followed by Portfolio management.
First, we spend a few days of meetings at the MFIs head office to meet the management and then conduct field visits to speak to their clients, field managers and officers. If we are satisfied, we will then analyse the country and macro-economy. Then we prepare a credit decision report for our own management. We do collect monthly reports from our MFIs and keep in contact with our MFIs on even weekly, monthly basis. BlueOrchard is a signatory of the client protection principles created by CGAP in Sept 2009 (Smart Campaign). When we visit the MFIs, we always ask about transparency and whether clients know the rate that they are charged, the flat rates, whether they know what they have signed, as well as check their pass books. We also see if there is a good corporate culture in the MFI to give us a good understanding of whether the MFI is having a cordial, friendly approach towards clients, and that the clients do not show any anxiety in the groups. What we find a challenge is identifying the ethical staff behaviour. That is more difficult to evaluate because the management can put on a bluff.
I promised a few examples. Besides being on the ground to understand the officers and clients, we also spend time checking with credit bureaus and regulatory authorities. I will be honest with you, that there were times when I asked how many women have outstanding loans with other MFIs, there was first silence, before “no, no”. Obviously. Then with the loan officer’s help, more hands raise up and admit that they do have multiple loans. If a client has the capacity to pay 3-4 loans, then it is fine, but if they don’t, it is a problem. In India, as all of you know, in Andhra Pradesh, there was a repayment crisis and state interference. And so now they have signed a code of ethics for MFIs to make sure clients do not borrow from more than 3 MFIs and ensure that clients are in the position to repay.
(Ruben was handed a piece of paper from aside) ”Alright, I have 2 minutes left. *laughter* we have to be careful with staff collection procedures. As an investor, I feel we can do so much more, we are open to criticism and open to ideas to make sure we have more client protection. As you can see, some client protection principles are easy to check whereas others are harder to assess. Thank you very much.”
Kelly: We have heard about Blue Orchard’s 1 billion investments and what they have been doing, finding the truth from clients, officers and checking the corporate culture.
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