Securing the future through responsible exits

  • Anne CONTRERAS, Arendt & Medernach / e-MFP
  • Hermann BEYTHAN, Linklaters
  • Vicki ESCARRA, Opportunity International


Anne CONTRERAS, kicked off the session with the key challenge of responsible investors when exiting: how to ensure continuity in the MFIs mission? 50% of impact investors mention exits as their main concern. There is some track record, but many more exits coming up, with 30 MIVs to close before 2020. Best practices are needed for these exits to be handled responsibly.

Alex SILVA, founder and managing partner of OMTRIX started by trying to define what makes an exit responsible. Practitioners should first revisit their reasons for entering, what market failure did they try to address? If they find that this failure has been resolved, for example by identifying that more commercial competitors appear or customers are overleveraged, impact investors should consider exiting. Other reasons can be a change in organ­izational strategy; changes in the enabling environment making continued involvement unattractive, costly or too risky; and financial limitations. He stressed that no exit is perfect. It is not a purely financial decision but about finding a balance in the double bottom line. Who is affected, and in what way? Do clients have sufficient time to adjust? How are stakeholders such as staff and co-investors affected? Are there financial or reputational implications? Ideally, exits should already be planned when entering the market, considering different exit scenarios, and remain part of strategic reviews.

Silva provided several examples of exits. Key lessons learned included planning ahead, identifying like-minded investors to step in, clear agreements, time-lines which ensure continuity, and considering whether locked-in investments and capacities can be used more effectively in other areas. Lessons on what not to do included selling to buyers who can damage the institution’s reputation, or selling for a purely economic motivation.

Hermann BEYTHAN of Linklaters approached exits from the legal perspective of investment funds. Fund managers need to consider what happens when the fund sells an investment or the fund reaches its term or an investor exits. Also, what unforeseen circumstances should be accounted for in contracts and agreements? He considered three exit scenarios. In case of disinvestment managers can include clauses against mission drift in contractual agreements, but should be aware that enforcement after disinvestment might not be possible or desired. In case of exiting investors, managers need to consider whether the fund can continue without the investor, for example in case of investors bringing in key networks or capacities. The exit also needs to be structured, e.g. in terms of selling off assets and determining prices of non-liquid assets when selling is not desired or possible. Conflicts are likely to arise, in particular in case of over-pricing (hurting remaining investors) or under-pricing (hurting exiting investors). Finally, he considered fund termination. In case of funds reaching maturity, managers need to consider whether the mission is accomplished and whether an extension is desirable. In case of funds without a fixed duration, careful management is required and a balance needs to be found between the obligation of the liquidation to obtain the best results for the investors (notably maximum returns for investors) and the impact goal (adhering to the objectives of the fund). As a way forward he suggested that, like banks, funds should have a living testament on how they can wind down. He also stressed that in the end, legal constructs - while necessary and helpful – cannot replace the integrity and good faith of the people behind the agreements.

Vicki ESCARRA, Global CEO of Opportunity International USA, shared insights of the exit of Opportunity from nine financial institutions in Africa. Opportunity became active in the region to address the lack of financial services to the bottom of the pyramid. A combination of increased commercial activity in the sector and an increasing pressure on Opportunity’s financial and managerial resources to operate the banks led to a decision to divest. Opportunity’s strategy went beyond getting the best price, and looked at selling to a partner furthering its legacy of affordable banking to the poor, but also offering innovative and technical solutions to further increase outreach and impact. She described the process of partnering with MyBucks, which next to building relationships and ensuring mission compatibility at management level, also focused on ensuring the ability of the organisations to work together at other levels. Escarra also provided insights into the 15-year licensing agreement with clear commitments to continue serving the current portfolio, SMART certification of the banks, adherence to SPM standards, and the position of Opportunity in MyBuck’s Board and Credit Risk Committee.

She explained how the partnership enables Opportunity to serve more people, for example by setting up NGOs to work alongside the banks on farmer training and assistance, education and financial literacy. She also shared first successes from the partnership, such as a large reduction in loan approval time, and an increase in the number of clients.


The discussion started around (legal) recourse if objectives are not achieved. Escarra stressed the need to build strong partnership based on shared values. Beythan added that agreements need to set objective measurable indicators for success. Moreover, recourse depends on the availability of a strong legal system. Finally he stressed the risk of reputational damage in ensuring adherence to agreements. Silva referred to the CGAP Publication on exits “The Art of the Responsible Exit in Microfinance Equity Sales”, stressing that exits are an art, not a science with clear pathways to follow.

In terms of managing the process, Escarra focused on two aspects. Regarding the bidding process she stressed the need for transparency about the properties, to allow sufficient time, and to communicate with prospective partners. In terms of governance, she stressed the need for a changing culture in relation to investees, from one focused on ownership to one focused on leveraging resources and capacities through public private partnerships.

The discussion then turned to ensuring impact. A speaker from the audience stressed that we shouldn’t mix up increasing outreach with improving impact. Silva stressed that it is about finding the balance. Its starts from an alignment in mission, but in practice you cannot be sure what the buyer intends, or whether the benefits foreseen are met. Escarra added that secure legal documents and investing in the relationship is vital. In the legal documents adherence to social performance standards or other requirements, such as SMART certification can be included.

As a conclusion, the panel agreed that best practices need to be established. Contreras called for further action in this respect and saw a role for e-MFP in collecting such experiences.