Investment
Investment Procedure
Dutch Microfund invests in Microfinance institutions(MFIs) through both equity and loan products. Mainly MFIs are located in developing countries providing small loans, micro-insurance, micro-mortgages and savings products to the poor.
The employees of MFIs travel on motorcycles, bicycles or on foot to meet with the borrowers. They organize group meetings, provide local training and response for loan distributing/collecting. Borrowers will often form groups to guarantee each others’ loan payments. Primarily the repayment rate is as high as 97%.
In general, the initial loan amounts are small, typically between $50 and $200. The loan should be repaid in weekly frequency within three to six months. As soon as the borrowers establish their credit, MFIs may provide larger loans to help the borrowers expand businesses such as setting up a grocery store, trading handcrafts etc. Most of the loans do not require collateral.
The high repayment rate from borrowers allows the MFIs to continue lent to the poor and provide new products to meet the local needs.
Return Model
Owing to the high transaction costs of small loan amount and geographic disparity, depending on the local market rate, MFIs charge average microcredit interest about 15% to 35% to cover the high operation costs.
Dutch Microfund invests in MFIs through loan and equity vehicles. Similar as mainstream markets, the loan vehicle provide MFIs direct funding source to lend to the local poor; the equity vehicle take stakes in MFIs which potentially enable MFIs to access larger funding capital.
In general, the loan vehicle receives 3% to 6% and equity vehicle generates 10% to 20% due to the average financial leverage on equity side about 3.5 times. Dutch Microfund invests around 50% on loan and 50% on equity. The overall estimated return of DMF is 6.5% to 13%.
Asset allocation
