Introduction

Introduction to Nordic Microfinance Initiative

Introduction to NMI

Nordic Microfinance Initiative (NMI) was established in 2008 in Oslo, Norway as a partnership between the public sector and private investors.

Norfund and IFU, the Norwegian and Danish governmental investment funds for developing countries, represent the Norwegian and Danish States. The private investors are DNB Livsforsikring, Ferd, KLP, Storebrand and TD Veen.

NMI is registered with The Financial Supervisory Authority of Norway as Alternative Investment Fund Manager (AIFM). The NMI Funds are not subject to supervision from The Financial Supervisory Authority of Norway.

NMI currently has 12 employees in Oslo (HQ), Copenhagen, Delhi and Nairobi.

NMI's overall goal is to strengthen the position of the poor in developing countries by helping to create jobs and prosperity on a sustainable basis. This is done by investing in and supporting microfinance institutions (MFI).

What is microfinance?

Microfinance institutions offer financial services to the un-banked, bottom-of-the pyramid customers in developing countries.

1.7 billion people don’t use formal financial services and more than 50% of adults in the poorest households are unbanked. Financial inclusion is a key enabler to reducing poverty and boosting prosperity, according to The World Bank (2018).

http://www.worldbank.org/

Microfinance is a part of the solution for financial inclusion, which again is a measure to reach the UN Sustainable Development Goals of No Poverty (#1) and Decent Work and Economic Growth (#8).

https://www.un.org/sustainabledevelopment/

CGAP (The Consultative Group to Assist the Poor) is a leading independent resource for objective information on microfinance. CGAP’s mission is to help alleviate poverty by advancing access to finance. CGAP defines microfinance as follows:

Microfinance is the supply of loans, savings, and other basic financial services to the poor. People living in poverty, like everyone else, need a diverse range of financial instruments to run their businesses, build assets, stabilize consumption, and shield themselves against risks. Financial services needed by the poor include working capital loans, consumer credit, savings, pensions, insurance, and money transfer services.

https://www.cgap.org/

NMI's Vision

NMI’s vision is to contribute to the empowerment of poor people in developing countries and to the creation of jobs and wealth on a sustainable basis.

We accomplish this by investing in and building up microfinance institutions, which especially target poor women in developing countries.

NMI combines existing experience in the field of microfinance and international development cooperation, with the capital strength and financial experience of institutional investors.

NMI's six guiding principles

  1. We aim to create sustainable long-term impact with the investments we do. We do not invest where it is easiest or where risk is lowest. We invest where we believe we can achieve the biggest social impact alongside financial return.
  2. We believe that responsible[1] microfinance has a positive impact through the provision of financial services in general. However, we prefer to invest in MFIs that have a clearly stated social mission that describes the positive impact the MFI aims to have on society. Therefore, we evaluate the MFI’s social ambition and its capacity to fulfil this mission prior to investing.
  3. We believe the best way to create sustainable long-term impact is by helping to develop well-managed, financially healthy, scalable financial institutions. Therefore, we invest in MFIs that have reached financial sustainability or have good prospects for attaining financial sustainability within the next few years.
  4. We wish to ensure that we and our investees do everything we can to treat clients well and protect them from harm. Therefore, we endorse the client protection principles and require all investees to do the same. We also apply and require investees to adhere to standard policies on AML, business exclusion and business integrity as well as relevant national legislation.
  5. We strive to be fair and transparent in all dealings with investees and partners. Also, we strive to deliver appropriate financing that meets demand, clear and balanced contracts, and fair processes for resolving disputes.
  6. We seek to be an active investor and, when possible, take up governance positions in the board of the MFI or committees under the board. When investing in emerging MFIs, we carefully evaluate if the MFI would benefit from professional or other technical assistance that is available through NMI’s Technical Assistance Facility.

NMI's Funds

NMI's investments are made through the NMI Funds: Global Fund, Frontier Fund, Fund III and Fund IV.

The Funds are managed by the company, Nordic Microfinance Initiative AS (NMI). NMI and the Funds are established under Norwegian law.

  1. Global Fund invests in more mature and larger MFIs primarily through Microfinance Investment Vehicles ("MIVs") as well as established MFIs in Asia, Africa, and Latin America.
  2. Frontier Fund invests in young and emerging MFIs primarily through direct investments but has a few investments in MIVs that mainly have emerging MFIs in their portfolio. Investment regions are Sub-Saharan Africa and South Asia.
  3. Fund III makes direct investments primarily in emerging MFIs, but may, in special cases, invest in MIVs that focus on such institutions. Investment regions are Southeast Asia, South Asia and Sub-Saharan Africa.
  4. Fund IV also makes direct investments primarily in emerging MFIs, but may, in special cases, invest in MIVs that focus on such institutions. Investment regions are Southeast Asia, South Asia and Sub-Saharan Africa.

Double bottom line: Social and Financial results

NMI targets both social and sustainable financial results.

  1. Social results: NMI invests in responsible financial services and require all MFIs to endorse the Smart Campaign’s Client Protection Principles. We prefer to invest in MFIs that have clear social objectives and work systematically to achieve them. These social objectives can both be universal or unique in nature. Prior to investing we evaluate the MFIs social ambition and its capacity to deliver on it. During the investment period NMI sets certain requirements for MFIs’ measurement and reporting to ensure that important social and financial goals are reached. This enables us to make a holistic assessment of their business. Measurement and reporting of social development also means that we can document the contribution to enhancing financial inclusion. NMI works with and promotes with important standards, e.g. The Client Protection Principles (CPP) developed by the Smart Campaign and the Universal Principals for Social Performance, developed by the Social Performance Task force (see the section Useful links below). NMI’s Social Performance framework can be downloaded here.
  2. Financial results: In addition to social returns, NMI is committed to achieving sustainable financial returns on our investments. Financial returns are necessary so that portfolio microfinance institutions can grow and develop their businesses, and that we are able to grow with them and maintain and attract investors. When identifying potential investments, NMI looks for companies that have significant growth potential in their local market, while being financially sustainable. Once invested, NMI works together with the management team to develop the financial potential of the company. NMI’s equity investments usually last 5-8 years. The financial return for the first ten years after inception was ~10 percent net annual USD return to investors.

Investees

NMI’s investment principles are geographical concentration, direct investment, active ownership and risk balance.

NMI invests in MFIs in Sub-Saharan Africa, South-Asia and Southeast Asia that have both sustainable social and financial goals.

The typical candidate for investment is an MFI with targets and ambitions to expand its geographical outreach, product offering and the use of digital finance. These factors contribute to the empowerment of the poor by creating jobs and increasing welfare in a sustainable manner.

Instruments

NMI prioritizes active ownership and offers a variety of instruments tailor made for each microfinance institution.

By being a long-term financial partner, NMI follows the institution through different growth phases, and offers financial products in a flexible way.

  1. Debt: NMI offers debt instruments to MFIs where the target is to finance the growth of the MFI's loan portfolio. Debt investments are normally offered in local currencies and are often the first contact point the institution has with NMI. Debt investments are often tailor made to fit the needs of the MFI as regards to tenor and amortization. Pricing is made according to local markets and the risk profile of the MFI.
  2. Sub-debt: NMI has also the possibility of offering sub-debt to MFIs. The product may be structured as straight sub-debt but could also be linked with attributes closer to equity and convertibility.
  3. Equity: NMI equity investments are preferred as a long-term financing instrument. NMI invests in MFIs that have a proven growth track record including sustainable financial and social development. In this way, NMI helps ensure the continued growth of the institution.

Support Schemes

NMI has two support schemes to help portfolio MFIs achieve their social and financial goals: Technical Assistance Facility (TA) and First Loss Support (FLS).

  1. Technical Assistance Facility (TA): Technical assistance (e.g., competence building) seeks to assure that emerging MFIs will be able to execute their business plans successfully, meet their growth and expansion targets, achieve their projected development impacts, and enable financial and organizational sustainability. The NMI TA is funded under a grant from NORAD, the Norwegian Development Agency. To ensure high buy-in and ownership of projects, the NMI TA Facility involves emerging MFIs in the project design and selection of TA service providers. The emerging MFI must also make a clear financial contribution to NMI TA-financed activities. The Facility encourages the participation and involvement of local TA service providers from regions and countries where the NMI Funds invest. This encourages and strengthens the development of local and regional expertise and know-how.
  2. First Loss Support (FLS): NMI may offer financing in local currency thanks to a limited hedging scheme (FLS) which is funded by the Norwegian Ministry of Foreign Affairs and administered by Norfund. The FLS helps the MFI to mitigate the risk of the local foreign exchange market, providing predictable funding cost. The FLS also reduces currency risk for NMI’s investors.

Memberships and Endorsements

Category

Policies / membership

NMI Status

MIV Network (general)

Financial Inclusion Equity Counsil (FIEC)

Member

Network (social performance)

Social performance task force (SPTF)

Member

Other

Mix market, database

Member

Principles

Client Protection Principles

Endorsed

Principles

Smart campaign

Member

Principles

Universal principles for social performance

Follows

Report data to survey

Symbiotics

Reporting to

Report data to survey

FIEC valuation database

Reporting to

Useful links

Below are some useful links to important players in the industry.

  1. The Client Protection Principles (CPP) are the microfinance industry’s universal standards for good customer care. All microfinance institutions in which NMI invests, have endorsed these principles, and we monitor regularly that they adhere to them. Through The Smart Campaign, NMI supports efforts to ensure that most MFIs are working in line with the CPP.
    https://www.smartcampaign.org/
  2. Microfinance Information Exchange (MIX) is an industry organization that prepares objective, quality assured and relevant information for the microfinance sector, based on reports from over 3,000 institutions. NMI is a member of MIX, and strongly encourages its portfolio MFIs to report to the MIX on an annual basis.
    https://www.themix.org/mixmarket
  3. The Social Performance Task Force (SPTF) was created in 2005. Its vision is to ensure that social performance management is standard business practice and is considered fundamental to achieving the social promise of microfinance. Today, SPTF consists of more than 3,000 members from microfinance stakeholder groups including practitioners, donors, investors, national and regional networks, technical assistance providers, rating agencies, academics, researchers and others.
    https://sptf.info/
  4. The FinDev Gateway is the most comprehensive online resource for the global microfinance community. It includes research and publications, discussion groups, featured articles, organization and consultant profiles, and the latest news, events, and job opportunities in microfinance. The mission of the site is to advance knowledge and encourage innovation within the microfinance industry.
    https://www.findevgateway.org/

Norway office

Rosenkrantz' gate 22, 7th Floor
N-0160 Oslo
Norway

P.O Box 1925, Vika
N-0125 Oslo
Norway

Telephone: +47 22 36 22 40
Fax: +47 22 42 89 01
E-mail: info@nmimicro.no

Denmark office

c/o IFU
Fredericiagade 27
1310 Copenhagen K
Denmark

Kenya office

c/o Norfund
14th Floor, The Address
Muthangari Drive
Nairobi
Kenya

Post box 66162
Westlands
00800 Nairobi
Kenya

India office

c/o Spring House Coworking Private Ltd
LG/UG 006, Grand Mall, M.G Road
Gurugram, Haryana 122002
India