responsAbilty reopens CLO market for Microfinance and SMEs

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    Stockholm (NordSIP) – responsAbility Investments AG, announced it had securitised US$ 175 million worth of loans of microfinance and SME-finance institutions in emerging markets. The CLO is denominated in US Dollar and has a maturity of three years.

    The securitisation process pooled the loans of 26 micro and SME finance organisations. Although each of these organisations was too small to tap financial markets, the CLO that pooled them together was large enough to appeal to investors in global capital markets. The CLO is not rated and is divided into three tranches providing investors with three different risk-return opportunities according to the: senior (Class A: US$ 131.019 million), mezzanine (Class B: US$ 17.469 million) and junior (Class C: US$ 26.204 million), in a transferable format bond format listed on the Irish Stock Exchange. Return-wise, the senior and mezzanine notes earn fixed interest rates of 2.83% and 5.44%, while the junior note will pay a return proportional to the performance of the underlying loan portfolio. There are no call options on this security.

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    “This is an area of increasing focus for fund managers globally and applying capital markets technology to traditional impact investing creates the potential to open this sector to a wider range of investors,” said Eric Wragge, Managing Director, Securitised Products Group at J.P. Morgan. “We are very pleased to have helped facilitate this flow of investment to emerging economies, where financial inclusion can make such a difference in the lives of small-scale entrepreneurs and their communities,” Eric said.

    According to responsAbility, the proceeds will be used to fund financial intermediaries providing capital to 30,000 small businesses and 5.6 million microfinance borrowers, 81% of which are women. “This securitisation shows that the fast-growing microfinance and SME finance space in emerging markets has now reached a maturity that allows it to access financing from mainstream capital markets,” commented Thomas Müller, Co-Head Financial Institutions Debt at responsAbility. “This transaction reopens the impact securitisation market and paves the way for further issuance in pursuit of the 17 Sustainable Development Goals,” commented Desiree Fixler, Senior Consultant to responsAbility, Managing Director, ESG Investing at Zais Group.

    This transaction was seeded by investments from the Overseas Private Investment Corporation (OPIC), a US government agency, and Alecta, a Swedish occupational pension provider and the fifth largest such institutional investor in Europe, and investing in the essential risk capital. Among other investors Impact investing firm Calvert Impact Capital also brings U.S. private capital into the deal.

    “OPIC is proud to partner with responsAbility to expand access to the financing of micro-entrepreneurs and small business owners – especially women – who need to grow their businesses, create jobs and help their communities thrive,” said Tracey Webb, OPIC Vice President for Structured Finance and Insurance. “Alecta actively manages approximately US$100 billion, at an extremely low management cost. To meet our high sustainability standards and really make an impact with maintained low costs, these are the kind of partners and product we’re looking for. This type of security allows Alecta to invest capital extremely efficiently,” said Magnus Billing, CEO of Alecta.

    Impact CLOs were not unheard of before the financial crisis, with BlueOrchard reportedly issuing such securities. However, the market appears to have disappeared following the fall from grace of securitisation after the collapse of Lehman Brothers in 2008. At the moment, responsAbility offers investors the opportunity to invest in similar debt products via its responsAbility SICAV (LUX) Micro and SME Finance Debt Fund. The fund, which has been available since 2008, reported investments worth US€ 16.5 million in ten institutions in eight different countries, including India and Mexico. Between its inception in 2008 and the end of June 2019, the fund has returned 11.32%. Year-to-date, the fund has returned 2.48%. In June it provided a 0.38% return.

    Private investors included Calvert Impact Capital and Ameriabank. “This deal has great potential to serve as a template for making microfinance – and other impact investing deals – more accessible to a range of investors in the future,” noted Songbae Lee, Director of Investments for Calvert Impact Capital. “We’re excited to help scale responsAbility’s microfinance platform and ultimately, get more capital flowing to the communities that need it most.”

    “We are delighted to be part of a global pool of quality microfinance and SME finance players, participating in an innovative, global capital markets transaction managed by responsAbility, arranged by JP Morgan, and invested in by OPIC and other high quality investors in pursuit of the Sustainable Development Goals,” commented Gevorg Tarumyan, CFO, Deputy General Director of Ameriabank.

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    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.
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