COVID-19 – What does it mean for the Fund?

The repercussions of COVID-19 are widespread. Although we saw corrections in many of the more liquid markets almost immediately, the impact in the informal economy is much harder to ascertain, and varies from country to country, and sector to sector. However, as time goes on, it becomes clear that none of our markets are untouched by the influence of COVID and the full impact of the disease on microfinance has yet to be felt.

Microfinance

Many of our institutions have already contacted us to explain the challenges that they are facing. We are monitoring and working with each institution individually and will continue to support our existing partners where possible. This work now takes up most of our analysts’ time and is fundamental. Afterall, MFIs are offering a very important lifeline to the most marginalised communities at this time but are facing considerable challenges.

In several countries, the government has instituted loan freezes with the consequences that MFIs cannot recover repayments from the loans they have outstanding for the next few months. In other geographies, MFIs are working with sectors which are particularly heavily affected by the crisis. Again, it is far from clear what the full impact of COVID and the measures taken to combat the disease will be, but it is clear that our partner MFIs do need support.

For our investors to understand more about the challenges faced by microfinance institutions at this time, the Fund is holding weekly Voices from the Ground sessions. These are open to all and provide an important insight into the important work MFIs are conducting at this time, as well as the challenges they are facing.

It is worth noting that, for many geographies in which we operate, this is not the first crisis that MFIs have seen. Although these are certainly difficult times, Business Continuity Plans have been implemented by many of our partners with speed and efficiency. Our partner ADA also has resources available to support MFIs with this, and with risk management and more details can be found here.

At this time, the Fund has taken the decision to slow its disbursements to new partners, until the operating environment becomes clearer. This means that liquidity in the Fund will increase. However, the team are continuing to build a pipeline of promising transactions (due diligence with existing partners is still being conducted – albeit not onsite!) ready for post-COVID times.

What is microfinance?

Risk Management

The Fund has always taken a conservative approach to risk management. Now, as well as increasing the frequency of meetings with MFIs, we have also increased our risk management activities. We hold formal weekly meetings to discuss the impact of the disease and our independent Risk Committee will also be meeting frequently to validate our responses.

The portfolio remains well diversified, operating across many geographies, and supporting micro-entrepreneurs in many industries. Although COVID’s impact will clearly be very wide reaching, this lessens our exposure to any one area.

All our positions are fully hedged. This has shielded us from some of the volatility seen across many markets and this is a policy which we will continue to follow.

Class C shareholders benefit from a first loss mitigation mechanism, which means losses of 37% of the portfolio are possible before they lose any value. Of course, our aim is to avoid losses where possible, but we hope this cushion provides comfort.

We are, of course, available for any questions which you may have. Please stay in touch and stay safe!

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– this article is subject to updates depending on the development of COVID-19 –