Agora Microfinance CEO Tanmay Chetan shares the company’s purpose and explains how the company is navigating the space:
Agora is a microfinance operator-investor that builds microfinance institutions in frontier markets. Its mission is to maximize the social returns in microfinance while providing a fair and attractive return to investors.
Smriti Pandey: Please share some insights into your recent investments in the microfinance sector in terms of organizations, their size, their age, their country of operations, etc.
Tanmay Chetan: In the past year, Agora has made continued equity investments into our subsidiary retail operations in Zambia and India, in addition to creating 2 new entities in Botswana and South Africa. Altogether, our retail operations reach in excess of 175,000 clients and manage total assets of around $25 million. Aside from that, we also make debt investments into financial inclusion in Africa and Asia, in which our current portfolio of $15 million is spread across 6 countries and 7 institutions. Generally speaking, all our investees are engaged in livelihood and/or SME financing and have a strong focus on financial inclusion for the less-banked. These include both early-stage institutions as well as market leaders. Our overall reach through 2 financing streams currently extends to India, Zambia, Botswana, South Africa, Kenya, Uganda, Nigeria and Cambodia.
What are the key factors you look at to assess the potential for growth and sustainability in a microfinance institution?
The main factors for our investment are 2-fold: (i) the extent of value creation through our partners’ financial services, and (ii) their ability to do so in a financially viable manner. We are not explicitly growth oriented as that is often a by-product of the achievement of the 2 factors mentioned. Having said that, we have been behind market leaders in different markets when it comes to their reach. Our subsidiary in Zambia is the largest institution in the country and reaches the deepest parts of the country.
What qualities do you seek in the founders of microfinance institutions?
In addition to the skill-sets, a deep passion for using finance as a means to achieving better livelihood outcomes for clients, is a prerequisite for our leadership colleagues. We have not worked with many founders on the equity business as we tend to develop our own institutions, however this is indeed relevant for our debt investments.
In what range do you provide equity & debt to microfinance institutions? What is the average?
We do not normally make equity investments in existing institutions unless there is a high degree of alignment on the purpose. So far, we have invested between $5-10 million in our equity companies. Our debt investments usually aim to bridge the gap in financing faced by up-and-coming institutions, and therefore tend to be between $1-3 million in most cases. Once institutions’ demand exceeds that level, they are able to access larger funds and we see our role in helping them get to that point.
What are your leading sources of funding for Agora?
Our main direct funding is from private equity investors, but we also work quite a lot with development finance institutions and their investee funds, as well as private funds.
What emerging trends in microfinance are you most excited about? How are these trends shaping your investment directions.
The use of analytics is a new exciting phase for the industry, whether through digital lending platforms or even fintechs. We are watching these spaces carefully and innovative approaches definitely attract our attention. Our investment decisions are however predicated on the desire to achieve strong social outcomes in our investments.
What is the overall social and economic impact of Agora’s investments so far?
While impact claims can often be overly simplistic, we can still say that a vast majority of our end clients would have had little access to finance before our operations were able to reach them. This is especially true in Zambia and the wider sub-Saharan Africa market. Our indirect impact in these markets can also be seen in channeling investments into smallholder farming, another area that lacks sufficient investment activity. Our internal as well as external reviews show that over time, a large proportion of our clients report better livelihoods and stronger resilience in their household economies.
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