20
2012 ANNUAL REPORT ®
2012ANNUAL REPORT
®
MicroVest Capital Management, LLC (“MicroVest”) is a private, for-profit investment adviser registered with the SEC and is headquartered in the Washington, DC metropolitan area. MicroVest was founded in 2003 and is majority owned by four nonprofits:
Cooperative for Assistance and Relief Everywhere, Inc. (CARE)
Mennonite Economic DevelopmentAssociates (MEDA)
Cordes Foundation
Seed Capital Development Fund (SCDF)
Top photo: Swadhaar FinServe Private Limited Second photo: MicroFin Group ACP Watermark photo: Zhong An Credit
Please see page 16 for important information. 1
Table of conTenTs
Letter from the Chairman of the Board...................................................2
Letter from the Chief Executive Officer ...................................................3
About MicroVest ..........................................................................................4
MicroVest – focused on LIFI sector ..........................................................5
Expanding Investment Universe .............................................................6
Investment Portfolio ...................................................................................8
Social Impact..............................................................................................10
Advans Cameroun.....................................................................................11
TBC Bank .....................................................................................................12
Banco Solidario..........................................................................................13
MicroVest Governance .............................................................................14
MicroVest Team..........................................................................................15
Disclosure Page .........................................................................................16
2012 Milestones .............................................................inside back cover
Please see page 16 for important information.2
I am often asked how MicroVest approaches the dual targets offinancial success and development impact. Using a nautical analogy, I explain that we are striving for an appropriate balancebetween a social ballast and a commercial sail. Too much social ballast results in slow progress. Too much commercial sail and our shipcapsizes in a storm. Finding the right balance is challenging and needs to be constantly evaluated.
As Antony Bugg-Levine and Jed Emerson highlight in their recent book on Impact Investing,much of the world lives in a bifurcated world where the only goal of investing is to makemoney, and the only way to create social good is through charity. As we strive to break thisparadigm, I am increasingly focused on the role that governance plays in evaluating the rightbalance between the social ballast and the commercial sail.
The MicroVest Board of Directors is comprised of representatives of the nonprofit owners plus independents, and brings what we believe is a diverse wealth of practical business experience. Our aim is firstly to ensure that appropriate systems and processes are in placeto manage investment operations, and then secondly to provide Gil and his managementteam with a clear definition of success and relevant performance metrics. I believe that thequality of this nominated board is one of MicroVest’s core strengths, and provides investorswith some ease that issues are addressed professionally and with appropriate oversight.
Strong governance structures are also crucial at the low-income finance institutions that weinvest with, especially in balancing the altruistic and commercial. The owners, Board, andmanagement must all have a deep rooted respect for their low-income client base, resultingin the delivery of financial services in an ethical manner. They must also understand that thebest way for a bank to have the maximum positive impact is to build a fiscally strong institution that will expand products and outreach and play an active role in a communityfor many generations.
The recent performance and growth in assets at MicroVest has left me more excited than ever.I look forward to joining with you as we continue to provide a powerful challenge to the bi-furcated world of investing and impact.
W. Bowman CutterChairman of the Board
Letter from thechairman of The board
Please see page 16 for important information. 3
When we started to build the foundations of MicroVest over a decade ago, the Board of Directors and management agreedto build a fiscally sound asset management company. The goal ofthis company was to provide investors in our vehicles with risk-adjusted returns, blended with the mission of supporting the financial needs of the working poor in a responsible and scalable manner.
We are pleased to report that over the past ten years these objectives have consistently beenmet. During 2012 the Board reiterated our intended obligation to build upon this success,and encouraged MicroVest to seek further growth while improving operational efficiencies.
Part of the growth strategy saw the creation of MicroVest GMG Capital Management, LLC, ajoint venture between MicroVest and GMG Investment Advisors. In November 2012, this newpartnership acquired the investment management of the Minlam Microfinance Fund, a $47million open-ended fund focused on providing local currency debt to low-income financeinstitutions (“LIFIs”). I am confident that the deep domain expertise of MicroVest combinedwith the institutional emerging market credit and foreign exchange experience of GMG willadd significant value to this strategy.
At the end of December 2012, MicroVest reached an important milestone of $200 million in assets under management including funds co-managed under our new joint venture withGMG Investment Advisors. These funds provide capital to 87 institutions in 45 countries, witha combined client base of 3.3 million borrowers. Our investment universe of low-income financial institutions continues to grow in size, diversity, and quality. Today MicroVest invests with SME banks, full-service community banks, and SME factoring companies as wellas traditional microfinance institutions.
While we are pleased to reach this important corporate landmark in assets under management, every time we travel to the field to work with our clients we are acutely awareof the significant unmet demand for working capital by small businesses and entrepreneurs.We continue to be inspired by the commitment and enthusiasm that investors show in ourwork, and this support drives us forward as we focus on the next decade.
Gil CrawfordChief Executive Officer
Letter from the chief execuTive officer
Please see page 16 for important information.4
about microvest
MicroVest is an investment adviser dedicated to reducing global poverty by applying a commercial framework to investing. MicroVest believes this approach provides entrepreneursin emerging markets with improved financial products and services at a lower cost, helpsbuild self-sustaining capital markets, and can provide our investors with risk-adjusted returns.
MicroVest funds have a range of investors, including, but not limited to, high net worth individuals, family offices, foundations, investment banks, pension funds, and internationaldevelopment organizations. We believe our investors typically seek risk-adjusted financial returns from a diversified portfolio, combined with positive social impact. MicroVest fundsseek to invest in financial institutions serving low-income populations; these low-income finance institutions (“LIFIs”) in turn provide small loans to an assortment of borrowers, suchas local entrepreneurs, small businesses, farmers, and lending groups.
Access to financial services is vital in the development of any economy. MicroVest believesproviding safe, secure access to capital and savings is one of the best ways to help improvethe lives of the poor.
Global Investors
MicroVest Family of Investment Vehicles
Low-Income Finance Institution
Micro-entrepreneurs and Small Businesses
InvestmentCapital
Financial Returnand
Social Impact
TailoredFinancing
Financial Returnand
Social Impact
Financing forProductive
Activities
SustainableFinancialRe!ows
Please see page 16 for important information. 5
microvest – focused on lifi sector
MicroVest’s ongoing commitment to commercial best practices is exemplified by its reputation as the “due diligence people”. A deliberate focus on low-income finance institutions has created a robust and specialized duediligence process managed by a team that we believe hasunique experience.
The multi-stage due diligence process begins with a comprehensive top-down country analysis, before moving onto a character review and a detailed bottom-up credit and operations due diligence. After an initial desk review, a company is typically subject to aweek-long on-site visit.
We believe another strength of MicroVest is ongoing portfolio monitoring, both quantitativeand qualitative. Continual correspondence with LIFI clients results in a close relationship that can serve as an early-warning system of negative trends. The team provides detailedfeedback of our due diligence process to clients, which we believe enriches the operationsand governance of the low-income finance providers.
MicroVest is committed to developing the impact investing market through education and creating awareness. Team members speak at numerous conferences throughout the year. MicroVest is a signatory to industry initiatives, including MFTransparency, Principles for Investors in Inclusive Finance (PIIF), The Smart Campaign, and the Social Performance Task Force.
Top photo: FINCA Tajikistan Lower left photo: TBC Kredit Lower right photo: Swadhaar FinServe Private Limited
Please see page 16 for important information.6
expanding investment universe low-income finance institutions
MicroVest focuses on LIFIs that provide financial services to low-income communities in whatwe believe is a profitable, scalable, and ethical manner. Over the past ten years MicroVesthas sought to leverage its expertise in traditional microfinance, to “field-test”, grow, and diversify the LIFI investment portfolio.
Types of LIFIs currently in MicroVest Portfolios:
attractive dynamics – risk, return, liquidity, and impact
MicroVest believes that the LIFI investment universe is attractive for a variety of financial andimpact factors, including:
Significant unmet demand – entrepreneurs in need of working capital drive LIFI demand for commercial investments. Access to capital results in growth of LIFI clients, products, andservices.
Excellent credit quality – LIFIs in the MicroVest portfolio are well-capitalized, regulated entities exhibiting low write-off rates.
Natural liquidity - Credit to LIFIs is relatively short-term, with initial loan tenors ranging from6 months to 3 years.
MicrofinanceInstitutions
(“MFIs”)
SMEFinance-Banks
AgriculturalValue Chain
Finance
SME Finance –Factoring
Companies
Full-ServiceCommunity
Banks
successful Product development creates value for all
MicroVest investment funds seek to unlock new commercialinvestment capital and create a win-win-win scenario forLIFIs, investors, and MicroVest.
Market Assessment – MicroVest continually gathers informationfrom both LIFIs and investors to assess if a financing gap exists that canbe bridged by MicroVest.
Demand – LIFIs have a wide range of financing needs driven by sophistication, growth cycles, regulation, seasonality, and geography.
Supply – Investors in MicroVest funds have a wide range of investment expectationsacross the key variables of risk, return, liquidity, and impact.
recent Product development – africa, liquidity, flexibility & local currency
Over the past three years MicroVest has launched four investment vehicles, each with a specificmarket focus that seeks to create shared value. Each vehicle is designed to utilize MicroVest’sunique ability to originate, structure, underwrite, and manage a diversified portfolio of LIFI investments.
• An Africa-focused LLC that seeks to uncover value by investing in both the debt and equity of small Sub-SaharanMFIs with patient long-term investor capital.
• A global 8-year fund that seeks to address the need for flexible financing across the balance sheet of growing LIFIs.
• A global open-ended fund that seeks to provide short-termdebt (USD or hedged local currency) to high quality LIFIs.
• A global open-ended fund that seeks to provide predominantly local currency debt to high quality LIFIs.
Please see page 16 for important information. 7
Product development
Top photo: SEF International Lower right photo: Fondesurco
Watermark photo: Zhong An Credit
Please see page 16 for important information.8
Ghana
Benin
Colombia
GuatemalaHonduras
NicaraguaPanama
Costa RicaEl Salvador
Mexico
United States
Ecuador
Peru Brazil
Bolivia
ChileUruguay
Paraguay
invesTmenT PorTfolio
Albania
Montenegro BulgariaRomania
KosovoMacedonia
Croatia
MoldovaUkraine
BosniaSerbia
Please see page 16 for important information. 9
Cameroon
C
Southern Sudan
Georgia
AzerbaijanArmenia
Kazakhstan
Kyrgyzstan Tajikistan
China Mongolia
Uganda
Kenya
Mozambique
Zambia
DR CongoTanzania
Namibia
India
Sri LankaCambodia
Russia
Germany
Philippines
KeyCurrent Investments
Previous Investments
as of December 31, 2012
Includes direct and regional investments through MicroVest I, LP, MicroVest II, LP, MV Short Duration Fund, LP, MicroVest+Plus, LP, Access Africa Fund,
Minlam Microfinance Fund, and Advisory contacts.
Please see page 16 for important information.10
social impact
Measuring social performance has become an important tool for understanding the impactof our work. MicroVest believes that effective social impact policies and metrics help illustratethe health and sustainability of any financial institution. Treating clients with respect makesgood business sense and we believe leads to long-run outperformance over time.
Over the last several years MicroVest has made significant enhancements to its social reporting policies and procedures. Key highlights include the revision and implementationof our proprietary Social Impact Scoring Model, becoming a signatory to PIIF, and integratingImpact Reporting and Investment Standards (IRIS) taxonomy into existing metrics.
Women clients*
Access to capital can play an important role in empowering womenand encouraging consistent economic activity. On average 46% ofthe borrowers in MicroVest-funded LIFI portfolios are women.
deposit-Taking institutions
Offering access to safe savings, a service in high demand by the poor,is one small step closer to achieving financial inclusion for all. Manyinstitutions that are deposit-taking entities are also subject to additional levels of regulation. 64% of MicroVest-funded LIFIs are registered to accept deposits.
Productive use loans*
An average of 83% of loans made by MicroVest-funded LIFIs are disbursed for productive purposes. Productive purposes include business activities such as trade and commerce, manufacturing, agriculture, and services. Institutions also lend for other purposessuch as consumption, housing, and education. Although housing andeducation may be economically defined as a consumptive service,we believe that this can be a strong indicator of an improved qualityof life.
*The ratios are calculated based on self-reported data from the LIFIs and weighted by MicroVest investment exposure across all funds under management, as of December 31, 2012.
Male 54%
Female46%
Deposit-Taking
64%
Non-deposit Taking
36%
Productive Use83%
Other 17%
Please see page 16 for important information. 11
The Republic of Cameroun is a geologically and culturally diverse nation in west Central Africa. Known as “Africa in miniature”,Cameroon is home to over two hundred different linguistic groupsand a variety of natural features such as beaches, deserts, mountains, rainforests, and savannas. Despite Cameroun’s relatively stable political and social environment, a third of the population lives underthe international poverty threshold.
Advans Cameroun was established in 2007 as the first greenfield institution by Advans SA SICAR, a venture capital company created by Horus Development Finance and other development institutions. Advans offers simple financial services to micro, small, and mediumsized enterprises.
Advans Cameroun has taken a leadership role in buildingconfidence in the Camerounian microfinance market.Advans has devoted a notable amount of resources toensuring clear and consistent communications with itsclients and promoting market transparency.
Since MicroVest began its relationship with Advans in2010, the institution has more than tripled its loan portfolio from $6.2 million to $23.1 million. It hasdemonstrated commitment to practicing secure andtransparent operating procedures, which is highly valued in Cameroun’s difficult business environment. MicroVest looks forward to continuing its support of Advans Cameroun.
advans client**
In 2002, Mr. Hevrè Nganmini began selling food and beverages tolocal restaurants, hotels, and bars. After several years of growing his business, he turned to Advans Cameroun for funding.The loans received have been used to expand his offering ofwholesale supplies and to meet increased demand during holidays and other peak times. Today, he manages a team of fivepeople, and plans to purchase a van to expand his delivery range.
Mr. Nganmini’s steady success has enabled him to improve hisfamily’s living conditions and to purchase property for a futurehouse.
Advans Cameroun
Please see page 16 for important information.12
Georgia is a mountainous country located in the crossroads ofWestern Asia and Eastern Europe. Agriculture and tourism play significant roles in the Georgian economy as over 4 million touriststravel to visit its mineral springs and historical and cultural monuments. The IMF named Georgia among the top five fastestgrowing economies in Europe in 2011.
TBC Bank was founded twenty years ago by two local Georgian businessmen. Today it is the second largest bank in Georgia, employing over 3,600 employees and managing a totalloan portfolio of $1.4 billion. TBC Bank is backed by four prominent international financial institutions (European Bank for Reconstruction & Development (EBRD), International FinanceCorporation (IFC), Netherlands Development Finance Corporation (FMO), and DEG), and by JPMorgan and Ashmore Group.
TBC Bank is dedicated to creating new opportunities and providing financial services for growing communities and businesses. It provides a wide range of services to more than 1,800corporate clients, 29,000 SMEs, and 645,000 retail clients. In 2011, TBC Bank acquired a majoritystake in the fast-growing Bank Constanta, a local microfinance bank. The acquisition of BankConstanta complements TBC’s existing microfinance resources and expands its presence inrural areas.
TBC Bank firmly believes it has a responsibility to contribute to the overall well-being of its nation’s people. It is dedicated to bringing change that will benefit society. It has donatedthousands of dollars to assisting in the development of tourism in the mountainous regionsof Georgia, promoting arts and culture, and restoring national monuments. TBC also launchedthe TBC Fund, raising over $4 million for the care and education of the victims of the 2008Georgian war.
MicroVest began a deposit-based relationship with TBC in 2009. Currently, TBC is focused on improving operational efficiencies by offering its clients alternativeand remote banking channels. Additionally, it leveragesexpertise in corporate and retail financing to further expand its SME finance franchise. MicroVest looks forward to continuing to support TBC’s growth plans.
TBC Bank
Please see page 16 for important information. 13
Ecuador is a South American country with a rich history that datesback to pre-Incan times. Ecuadorians value the preservation of thecountry’s past and present. It is home to four World Heritage Sites and was the first country in the world to recognize legally enforceable ecosystem rights.
Founded in 1996, Banco Solidario has become one of the largest microfinance institutions inEcuador, serving over 137,000 clients with a loan portfolio of $344 million. As an industry leader,Banco Solidario has created several innovative operation tools, including its centralized loanapproval system, gold-backed loans, and the first microfinance securitizations in Latin America.
Banco Solidario is also distinguished by a clear commitment to itssocial mission. In June 2010, Solidario was recognized by theSmart Campaign as one of five institutions with exceptional clientprotection tools. It has also endorsed MFTransparency, wasawarded a 4/5 Social Performance Rating by Planet Rating in 2011,and developed a Financial Education and Over-indebtedness Prevention program that reached 500,000 Ecuadorians.
Recognizing Banco Solidario’s strong performance and professionalism, MicroVest began its lending relationship in 2004and recently became a shareholder in 2011. MicroVest is a committed partner in supporting Banco Solidario as it improvesthe lives of Ecuadorians.
banco solidario client**
Ms. Lolita Cando wakes at two in the morning one to two times perweek to travel to the Mayorista Market in southern Quito, where shebuys 80 quintals (17,636 lbs.) of mixed potatoes. Ms. Cando and herteam of three employees re-sell these potatoes, whole or prepped,to restaurateurs and in the local Iñaquito Market.
Ms. Cando began working with Banco Solidario ten years ago. “Withborrowing, I can do something,” she attests. She has used the loansto buy land, a house, and a second vehicle for deliveries. She has hiredher husband to help with mechanical problems. Her family is independent: her oldest son lives and works in Paris, and her secondson studies automotive engineering.
Banco Solidario
Please see page 16 for important information.14
Ronald Cordes Cordes Foundation
Gil Crawford MicroVest Capital Management, LLC
W. Bowman Cutter (Chair) The Roosevelt Institute
J. Alex Hartzler WCI Partners, LP; Sarona Asset Management, Inc.
Lauren Hendricks CARE-USA
Kenneth Hochstetler Univest Corporation
Gerhard Pries (Vice-Chair) Sarona Asset Management, Inc.
R. Clair Sauder Praxis Mutual Funds
James A. Torrey OPIC
Bruce Tully Beehive Ventures
Kim Williams Wellington Asset Management Co. LLP (retired)
Richard Butler ING Capital, LLC (retired Managing Director)
Gil Crawford MicroVest Capital Management, LLC
W. Bowman Cutter The Roosevelt Institute
Greg Gentile GMG Investment Advisors, LLC
John MacIntosh SeaChange Capital Partners
Calvin Miller Food and Agriculture Organization of the United Nations (FAO)
Samuel Moss Impact Advisory Services
Gerhard Pries Sarona Asset Management, Inc.
Susan Salerno Consultant
Candace Smith MicroVest Capital Management, LLC
Bruce Tully Beehive Ventures
Jon Ylvisaker Yield Capital Partners, LLC
board of directors
investment committee members
microvest Governance
Please see page 16 for important information. 15
senior managementGil Crawford, Chief Executive OfficerChristopher Laurent, Chief Financial OfficerCandace Smith, Chief Operating OfficerDouglas Young, Managing Director, Investments
business development TeamDavid Wedick, Business Development ManagerMonica Slovik, Business Development AssociateChristine Saffold, Business Development Analyst
staffBrenda Hansen, General CounselGiulio Areinamo, Portfolio AnalystAkhil Gupta, Finance & Operations AssociateJoseph Quinn, Senior AccountantSusan Blake, Human Resources ManagerNahir Cruz, Legal AssistantKatie Olderman, Administrative Assistant
investment TeamRobert Ongodia, Investment ManagerAndreas Eichin, Senior Investment OfficerNathan Horst, Investment OfficerMiguel Jongewaard, Investment OfficerSharini Kulasinghe, Investment OfficerDasha Kuts, Investment AssociateAbiskar Shrestha, Investment AssociateBrian Weinberg, Investment Analyst
microvest Team
(left to right) Douglas Young, Christopher Laurent, Candace Smith, Gil Crawford
Please see page 16 for important information.16
DISCLOSURE PAGE FOR MICROVEST 2012 ANNUAL REPORT
Past performance is not indicative of future returns.
Figures presented within this document are estimated, unaudited and subject to change. The client stories and low-income finance institution (LIFI) profiles detailed herein are just a few of the previousinvestment opportunities that MicroVest Capital Management, LLC (“MicroVest”) has participated in. It should be noted that a comprehensive list of all investment opportunities for the previous 12 monthsare available upon request. The LIFI profiles presented do not reflect the actual performance of any particular MicroVest product. The LIFI profiles, no. of institutions, countries, and client base are set forthfor illustrative purposes only, are not necessarily indicative of the future performance of any MicroVestproduct, and are subject to change. Further, the investment types, percentages of investment types,and 2012 Milestones provided herein are for illustrative purposes only. The examples of specific investments discussed herein are included merely to illustrate the investment process and strategieswhich previously have been utilized by MicroVest. The investments discussed herein do not representall of MicroVest’s investments as of any particular date. A MicroVest portfolio will typically contain alarger number of investments than the examples set forth and accordingly, the examples are not meantto represent or be construed as indicative of the overall composition, number of investments or diversification of a MicroVest portfolio. MicroVest has broad and flexible investment authority. The investments described herein were not necessarily made during the same quarter or fiscal year, andthere is no guarantee that similar investment opportunities will be available in the future or that any such investments will be profitable. Information (specifically LIFI profiles and aggregate social performance metrics) included in this report is based on materials that are privately conveyed to MicroVest and have not been independently verified.
No representation is being made that any of the MicroVest products will or is likely to achieve a risk/ return record similar to those shown. There can be sharp differences between the risk/return profile presented and the actual results achieved by a MicroVest product.
Please also refer to MicroVest’s Form ADV Part 2A for further information on the firm: http://www.adviserinfo.sec.gov/iapd/content/viewform/adv/Sections/iapd_Adv2Brochures.aspx?ORG_PK=153395&RGLTR_PK=50000&STATE_CD=&FLNG_PK=00B0D3F800080166049F0390041A95D5056C8CC0
This document is for informational purposes only and is neither an offer to sell nor a solicitation of an offer to purchase an interest in any of the funds described herein (the “Funds”). Any such offer or solicitation will be made only by means of the relevant Fund’s Confidential Private Offering Memorandum, which contains a description of the significant risks involved in such investment. Prospective investors should request a copy of the relevant Memorandum and review all offering materials carefully prior to making an investment in any of the Funds. There can be no guarantee thatinvestment objectives will be obtained. Any investment in MicroVest is speculative, involves a high degree of risk and is illiquid. An investor in MicroVest could lose all, a significant portion or some amountof its investment. MicroVest’s performance is subject to volatility. In addition, the fees and expensesmay offset profits. There is no secondary market for investors’ interests and none is expected to develop.There are restrictions on withdrawing and transferring interests from MicroVest. In making an investmentdecision, you must rely on your own examination of MicroVest and the terms of the offering. You shouldnot construe the contents of the enclosed materials as legal, tax, investment or other advice.
** The information included is for informational purposes only and should not be construed as a statement of endorsement or approval by any party. Each prospective investor should consult his/herown professional advisers as to the suitability and propriety of an investment in any MicroVest product.
201285
Low-income finance institutions (LIFIs) financed by MicroVest through direct investments or indirect investments in
holding companies, funds, or other facilities
44 Countries in the LIFI portfolio through direct or indirect investments
or regional facilities
$121 millionTotal MicroVest financing to LIFIs through 2012
3.3 millionClients served by institutions in the MicroVest portfolio
$403 millionTotal financing provided by MicroVest from 2004 through 2012,
invested in 116 LIFIs and 53 countries
All data reported as of December 31, 2012, unless otherwise noted.
MILESTONES
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