The due diligence process

The due diligence process A key process in assessing the sustainability of an institution, main challenges and opportunities Riccardo Aguglia Senior ...
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The due diligence process A key process in assessing the sustainability of an institution, main challenges and opportunities

Riccardo Aguglia Senior Investment Manager European Investment Fund [email protected]

www.e-mfp.eu

EIF and Microfinance Selection process at EIF Due Diligence Process

[email protected]

www.e-mfp.eu

EIF Europe’s leading developer of risk financing for entrepreneurship and innovation EU specialised institution for SMEs, risk financing through: - Venture Capital and Mezzanine (FoF) - Structuring and Guaranteeing portfolios of SME and MF loans/leases - Microfinance - Fund Management (Regional Policy)

Geographic Focus / Intermediaries EU 28, EFTA, Candidate Countries Distributing through Banks and Funds

Authorised Capital EUR 3bn EIB: 60% EU: 30% Fin. institutions: 10 % AAA rated

Dual Objective of Meeting EU Policy Goals & Generating a Satisfactory Return on Equity [email protected]

www.e-mfp.eu

EIF offers 360º solutions to institutions that operate/plan to operate in EU’s MF sector Global Objectives 

Generate employment and foster economic development in EU MS



Increase access to finance for entrepreneurs, unemployed, vulnerable groups, etc.

Financing Capabilities Operational Capabilities  Equity and debt to enhance operational capabilities i.e. branch expansion, IT, hiring of staff, etc. (EPPA*, EPMF II**?)  Technical assistance (JASMINE***)

Funding

Internal Capabilities of EU Institutions that operate in the field of Microfinance

 Senior Debt (EPMF)  Subordinated Debt – Lower Tier II (EPMF)  Hybrid Debt (EPMF)  Equity (EPMF)

Risk Absorption Capabilities  Risk hedging through guarantees (CIP*, EPMF, JEREMIE**)  Products that combine funding and risk hedging elements (EPMF RSI***, JEREMIE)

* European Parliament Preparatory Action (funds entirely disbursed)

* Competitiveness and Innovation Framework Programme (2007-2013)

** Programme under development for next budgetary period

** Joint European Resources for Micro to Medium Enterprises

*** Joint Action to Support Microfinance Institutions in Europe

*** Risk-Sharing Instrument

[email protected]

www.e-mfp.eu

Selection Process for EIF

Commercial “…[Intermediary] and the European Investment Fund have signed an agreement that will expand [Intermediary] operations in microfinance and considerably increase the access to finance to micro enterprises…” “…[Intermediary] and the EIF have signed a funding facility agreement that will increase the access to finance to microenterprises. This project led by [Intermediary] will contribute to boost of the economy and the promotion of employment by leveraging on social elements.…”

First Screening

Due Diligence

and Legal Negotiations

Investments Risk and Portfolio Management

Team

Legal Due Diligence

Recommendation

Compliance

Closing /

Press release, XX/2013

Monitoring

Signature / Commitment

Approval Process by the Board of Directors

Note: How to apply for a guarantee under EPMF, please see application procedures at http://www.eif.org/what_we_do/microfinance/microcredit_guarantees/index.htm

[email protected]

www.e-mfp.eu

Preparation of a Due Diligence Visit



First screening • Understanding of financing needs • Evaluation of project value added • Preliminary assessment - AA



Due diligence arrangement • Due diligence attention points • Due diligence questionnaire • Due diligence Agenda

[email protected]

www.e-mfp.eu

Due Diligence Visit





The Institution and its structure • Mission and objectives • Background and track record • Fund structure and Investment strategy



• Governance and organization • Governance policies and procedures • Management team and staff management • Governing bodies and committees



Legal and regulatory framework • Institution legal structure • Country regulation on microcredit • Internal audit procedures

[email protected]



The Market • Microfinance sector in the Country / Region • Competition and market position • Target group/s Product / services and lending process • Main products/services offered • Main terms and conditions • Lending process (e.g. origination, monitoring) Risk analysis • Internal control process • Portfolio composition and management • Delinquency management

www.e-mfp.eu

Main due diligence outcomes

Strategy in microfinance (clear and well defined) Legal framework (favourable and straightforward) Financial and social return (good balance)

[email protected]

www.e-mfp.eu