[Panel session] Investors during Covid-19: new roles and responsibilities

  • Jurgen HAMMER, SPTF Europe
  • Frank STREPPEL, Triodos Investment Management
  • Edouard SERS, Grameen Credit Agricole Foundation (GCA)
  • Dannet LIV, Incofin

When the COVID crisis hit the world in the first weeks of 2020, businesses across the globe were immediately affected by the lockdowns progressively implemented by governments in an attempt to slow down the spread of infections. The poorest and most vulnerable populations, typically the clients of microfinance services, were most severely hit. Many FSPs had short-term liquidity issues and needed quick solutions. According to Frank STREPPEL, all players in the microfinance sector realised that the sector had to respond to the crisis quickly and that this required a sector-wide approach. Two main initiatives were taken.

One of these two initiatives was taken by a group of initially 9 leading MIVs under the coordination of Triodos, Incofin and Symbiotics. They came together in March 2020 and developed an MOU that outlined major commitments for coordination and alignment in the investor response to the degraded situation of FSPs.

Edouard SERS explained that the other leading initiative of investor coordination led by the French Grameen Credit Agricole Foundation (GCA) developed a Pledge assuring joint action for financial and social responsible action to support clients through the crisis. The Pledge put staff and client protection at the centre and formalised the support of the signatories through roll-overs, debt restructuring and other measures. The pledge also included agreements on monitoring of its implementation.

The outputs of these two coordination initiatives was further strengthened by the involvement of leading sector networks, in particular e-MFP and SPTF who supported and promoted the achievements of both groups to the larger investment sector.

In response to Jurgen HAMMER’s question how the two initiatives relate to each other, Streppel explained that the MoU is more pragmatic than the Pledge. The MoU aimed to address an urgent need for liquidity, while the Pledge has a wider purpose. Sers added that the MoU addressed the need to coordinate funding of the sector, whereas the Pledge then helped to make sure that financing of FSPs was done responsibly. For example, signatories checked that principles in the Pledge, such as minimising staff lay-offs, were applied to each roll-over. MFIs were given recommendations on how to apply the principles, such as best practices for using staff during the crisis.

Dannet LIV confirmed that the MoU helped investors to respond quickly to the crisis. They employed a similar strategy as the health sector to ‘flatten the curve’. In this analogy, the number of clients under stress and in need of restructuring represent the number of hospitalised people. To decide which investees to help first, investors grouped them according to four categories as described in the MoU. Based on client perceptions, Incofin projected that 25 percent of their clients would be under severe stress and needed restructuring. 

Hammer asked the panellists to share how the two coordination initiatives could continue to provide support to the sector in the long term. Streppel explained that the MIVs initially expected to see the effects of the crisis on portfolio quality and capital needs around the summer of 2020. As time passed, many loans were restructured and the need for capitalisation was delayed. At the time of EMW, the MIVs were still waiting to see the effects on portfolio quality and capital needs. In a way, the concerns about immediate liquidity problems of clients have been eased, as liquidity did not prove to be the major issue. At the same time, MIVs are weary that FIs with large portfolios in economic sectors that were hit hard by the crisis, will still face difficulties.

Hammer asked Sers to evaluate the implementation of the Pledge. Sers informed the audience that the Pledge signatories evaluated 70 roll-overs for their implementation of 10 principles of the Pledge. In most cases, lenders have very well coordinated and took decisions that ensured an equal treatment of all lenders in coordination with FSPs. In some isolated cases, some lenders had initially diverted from the group approach, but revised their decisions after peer pressure from within the group. After a first focus on liquidity, the next steps are to provide more technical assistance to manage credit risks and to agree on shared principles for client and staff protection.

Hammer asked Liv to share her view on the effects of investor coordination on the longer term. She first stated that the actual number of MFIs that needed restructuring has been less than anticipated, and then explained that MFIs that needed restructuring were MFIs that already had underlying problems which came to the table due to the crisis. However, she was concerned that some repayments are ballooned into 2021 and that problems may be postponed. Some clients appear to be under-provisioning, as regulators eased their provisioning requirements. Investors are reluctant to put new money in the market in a situation where developments are unpredictable. Incofin set out guidelines for onboarding new clients only after they have done due diligence and can show a strong credit worthiness. Incofin also makes sure that client and staff safety are put at the forefront and that collection practices are adhered to.

An audience member asked the panellists if they had the impression that the burden of the crisis was shared fairly among the microfinance actors. Streppel responded that the crisis had an impact on all actors, including investors, though there are differences between actors with some MFIs more affected than others. Currently, the main concern of investors is no longer the liquidity of MFIs, but the risk that every investor will serve the same MFIs. Streppel argued that public funds can play a role in supporting the higher risk investees. At the same time, those public funds should not be used in case private funds can play a role. While Sers noted that he had seen little public funding going to high-risk investees, public funds support technical assistance programs that could help them face the crisis. Liv added that she hopes for continued support from Development Finance Institutions (DFIs) and especially their technical assistance.

Hammer then raised attention to the restrictions of the crisis and the reduced capacity to assess partners. He asked Liv to explain how Incofin manages this situation. Liv responded that it is particularly challenging to assess new clients. Incofin’s regional offices are exploring partnerships with other MIVs to hire local consultants for due diligence work. Co-financing of consultants by such partnership could be part of the coordination discussion. In Streppel’s view, the sector now has a good platform for coordination, which could address different inefficiencies in the sector.

Sers pointed out that the crisis assessment tool promoted by Incofin was a good example of sharing useful learnings between lenders. However, for measurement and reporting on client outcome data, the sector would still need to agree on a common framework to avoid inefficiencies. Hammer added that it should be an objective to prevent different investors from asking the same questions to MFIs.

Finally, audience member Camille RICHER asked if responsibly-positioned organisations are more resilient. Streppel and Sers explained that more time and research are needed to assess the resilience of differently positioned organisations. With the many moratoria of clients, the performance of clients on the long term remains highly uncertain.

For more information on the investor coordination initiatives, please see: https://www.covid-finclusion.org/investors with regular updates on development of tools and experiences.