Excess liquidity an issue in Latin America: Eelco Mol of Triple Jump

By Matthew Fuchs

Jan.11, 2010: Microfinance Focus has conducted a survey of fund managers about the investment climate in Latin America. Here are the views of Eelco Mol, Regional Director for Latin America at Triple Jump, a global fund manager with strong presence in Latin America. The funds they manage include the Oxfam-Novib Microfinance Fund and Calvert Social Investment Fund.

Microfinance Focus: Has funder appetite for the region been affected by the downturn?

Eelco Mol: The appetite has been affected, especially during the first half of the year. As we still maintain certain performance standards, somewhat adjusted due to the crisis, the number of MFIs that do not reach the minimal requirement has been increasing.

Microfinance Focus: How has the downturn affected microfinance institutions’ demand for funds? Is there a funding shortage or is excessive liquidity an issue?

Eelco Mol: The downturn has seriously affected the demand for funds. Especially in Central America and Mexico, demand has slowed down drastically. Most markets show excessive liquidity.

Microfinance Focus: A recent Fitch report argues that the impact of the downturn cannot be generalised across regions but varies from country-to-country. Which countries have fared better or worse than others?

Eelco Mol of Triple Jump

Eelco Mol: Countries most affected include Mexico, El Salvador, Honduras, Nicaragua and Ecuador. Less affected are Peru, Bolivia and Colombia. The international crisis has been more dramatic in Central America and Mexico where the effect on microfinance is visible as the repayment capacity of clients has decreased. The dependence of the region on the United States for trade and remittances is an important factor for this. Measures taken by Ecuador, such as interest rate ceiling, taxes on international capital and interest payments, have had an additional negative impact on the sector.

Microfinance Focus: Multilateral agencies and DFIs have stepped-up their investment activity over the last year, for example, the IFC’s Microfinace Enhancement Facility, OPIC’s new fund for Latin America. Do investors face increased “competition” from multilateral agencies?

Eelco Mol: The competition between funds is increasing with over-liquidity still in the market. The multilateral facilities mentioned play an important role in this, as the facilities are abundant and relatively cheap. We also see more internal supply, including government funds and commercial banks. This is especially the case in Bolivia, Peru and Colombia.

Microfinance Focus: The agitation for regulatory change in Nicaragua has been well-publicized. Are there any other moves toward regulatory change in the region? If so, what effect could this have on the investment climate in the region?

Eelco Mol: Some tributary proposals, similar to the one in Ecuador, are discussed in several countries including Nicaragua. This will lead to more expensive funding and a decrease in the profit margin. The recent change towards the regulation of the NGO sector in Bolivia is another important regulatory change. It is unclear yet what the direct result will be for funding, but it may be expected that MFIs become less incentivized to regulate in the short term. We are awaiting special regulation in Mexico, “Banco de Nicho”, which could be a positive move towards further regulation and transparency of the sector there.

About Triple Jump: Triple Jump provides financial services for microfinance institutions in all phases of their development. Triple Jump Fund Management, a leading microfinance fund manager, provides funding solutions, while Triple Jump Advisory Services, an independent foundation, provides consulting services and technical assistance. The current portfolio of Triple Jump is worth $160 million, invested in over 90 microfinance institutions in 37 emerging markets in Latin America, Eastern Europe, Africa and Asia. Headquartered in Amsterdam, the Netherlands, Triple Jump also has a regional office in Lima, Peru.

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