Two key elements are the primary risk mitigation instruments: (1) a diligent selection of our partners and a close monitoring of their progress and (2) a rigorous risk diversification.
The investment fund LMDF and its investment adviser ADA, form a team with more than 30 years of experience in microfinance. Together we have created a rigorous 8 step screening and due-diligence process to ensure that only those emerging microfinance institutions (MFI) with a solid track-record and sound practices are included in the investment portfolio.
The investment process is complemented by a quarterly monitoring, partially on-site to ensure that these institutions are progressing in the right direction.
In addition to our investment process, we apply a strict risk diversification framework which ensures that the Fund is never excessively exposed to individual microfinance institution nor country risks. We never invest more than 5% of the Fund in any single MFI and we never invest more than 15% of the Fund in any country.
This ensures that if things go wrong the impact remains manageable for LMDF.
A unique risk protection for you
As a special feature, an investment in Class C shares (shares open to individuals and not-for-profit structures) benefits from a risk protection mechanism. If a microfinance institution does not repay LMDF, Class C investors are protected through a first loss absorption through the Class A shares subscribed by the Luxembourg government and the Class Abis shares subscribed by ADA.
Class A and Abisshares must always constitute at least 20% of Class C shares, meaning that we can lose at least 1/5 of our entire (diversified) portfolio before you as a Class C investor start to loose money.
The mechanism was specifically designed to allow you as an investor without in-depth knowledge of microfinance to invest!