Transcript EMW09_de_Lutzel - e-MFP

LEGAL FRAMEWORK FOR
MICROFINANCE FUNDS IN EUROPE
Why is it crucial?
How to move forward?
Luxembourg
November 25, 2009
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www.e-mfp.eu
Summary
A. Presentation of the E-MFP Action group
B. Challenges of microfinance funds regulation
1. Microfinance context and need for regulation
2. Exceptions and models: Luxembourg and the
Netherlands
3. Issues to be addressed
C. Different solutions & comparative analysis
1. Regulation under AIFM Directive
2. Regulation under UCITS V
3. Specific microfinance regulation
4. Comparative analysis
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www.e-mfp.eu
European Microfinance Patform (E-MFP)
Action Group
 EMFP Action Group: 19 members from 5 countries, representing almost $2
billion assets under management in microfinance and 23.5 million retail & private
investors .
 European Microfinance Platform (E-MFP) founded in 2006 is a network of
119 organizations and individuals active in the area of microfinance. Its objective
is to promote co-operation amongst European microfinance bodies working in
developing countries.
[email protected]
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A. Challenges of microfinance funds regulation
1. Microfinance context and legal environment
2. Luxembourg and the Netherlands as exeptions
3. Specific issues to be addressed
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Why regulation of microfinance
funds at EU level is crucial
 No regulation = law of the jungle
 Importance of the creation of an equal level playing field within the European Union
 Demand of retail investors for microfinance products
 Necessary protection of the retail investor
 Social impact in developing countries (4 billion individuals concerned)
 Microfinance as a way forward in the social crisis in Europe
 European expertise in Microfinance (Banks & Asset Managers, NGOs)
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Investing in Microfinance: a new
type of asset class
Best In Class
Thematic (e.g. :
environmental)
Selection of companies
with the best social,
environmental and
corporate governance
practices
Selection of companies
whose products or
services benefit directly to
the improvement of the
environment or society
Investment Universe
Mainly Large Caps
Multi-sectors
Mainly Mid Caps
1 specific sector
Nature of underlying
assets
Listed
Listed or non listed
(private equity)
Non Listed companies
Non Listed instruments
(Promissory notes)
Mainly Non Listed (Private
Equity)
Categories of
Investors
All
Mainly Private banking
(HNWI)
Institutional, HNWI, Retail
Private Banking, HNWI
Profitability
Close to the benchmark
Higher than the
benchmark
Small profitability
High profitability
Volatility
Close to the market
From limited to high
Low (<1%)
NA
Social and economic
impact
Medium
High
Underlying Risks
Low
From low to high
Approach
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Microfinance Debt
Microfinance Equity
Selection of Microfinance Institutions (MFIs) whose aim is to
contribute to financial inclusion.
NGO / Financial Institutions
High
Low by experience
High
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Context and Current Situation
Most European countries have only limited options to promote and
distribute microfinance funds at the retail level.
 Microfinance as a tool of positive contribution to financial inclusion and poverty reduction. As
of June 2009, microfinance represents $50 billion assets for an estimated number of 10,000
microfinance institutions (MFIs).
 There are more than 100 funds in the world which finance $6.6 billion to MFIs (75% in debt
instruments). Currently 34% of the fund investors are retail clients.
 The current regulation on general investment funds (UCITS1 3 and 4 directives) as the major
obstacle for the development of microfinance funds:
 Investment instruments in MFIs are not “transferable securities and money market
instruments admitted to or dealt on a regulated market” (i.e. listed) as required by the
regulation.
 Microfinance Funds instruments are not adequate for daily publication of their Net
Asset Value (NAV) as required by the UCITS regulation.
 Microfinance Funds are not liquid enough to be able to cope anytime with
redemptions demand from investors as required by the current regulation.
1 Undertaking for Collective Investment in Transferable Securities
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Exceptions of Luxembourg and
the Netherlands
 The Netherlands and Luxembourg have allowed for fund structures licensed by the
national regulator, without falling under the scope of the UCITS directive.
15%
of the
AUM
The Netherlands Regulation
- Promotion of SRI through
implementation of Green Funds
Luxembourg Regulation
the
- Flexible Investments Vehicules through
the law on « Part II » Funds or the law on
SIF (Specialised Investment Funds)
- Tax break of 2.5% of the amount
invested
- National distribution to institutional,
private and retail investors
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36% of
the AUM
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Part II Fund
SIF
Distribution
to
Institutional
and
private investors
- Fiscal incentive
- Distribution to
Institutional
and
private investors
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Main Issues to be addressed
Main issues regarding products (UCITS):
 Consider promissory notes as valid debt instruments for funds

Adapt the valorization method to microfinance assets (debt & equity)
 Regulate risk diversification (number of countries & MFIs)

Define a regulatory allowance of microfinance in the fund (at least 50%)
 Define a category of acceptable MFIs (for example rating)
Main issues regarding asset managers (AIFM):

Flexible supervision for funds manager
Main issue regarding national regulation:
 Taxation issues: tax break / withholding tax
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B. Different ways to regulate at the EU level
1. Regulation under AIFM directive proposal
2. Regulation under UCITS V
3. Specific microfinance regulation
4. Comparative analysis
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Decision procedure under European Directive
1
PARLIAMENT
FIRST READING
COUNCIL
COMMISSION
1 Presentation of the legislative proposal
simultaneously to Parliament and Council
2
2 Parliament adopts amendments
and submits them to the Council
4
5
5 Parliament may approve the common
position and the text is adopted.
7 If the Council reject the amendments, a Conciliation
Committee is created (27 members of Parliament + 27
members of the Council).
3
4 If the Council does not accept
Parliament’s first reading vote, it
draws up a common position.
6
3 If the Council agrees
with the outcome of
Parliament, the legislative
text is adopted.
SECOND
READING
6 Parliament may table
amendments to the common
position. In this case, the
Council
can
approve
Parliament’s
amendments
and the legislative text is
adopted.
7
THIRD
READING
CONCILIATION
COMMITTEE
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8 The Conciiliation Committee adopts a joint text
which is submitted to the Parliament and the
Council.
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Different solutions:
Different ways to regulate:
European Directive on AIFM
 AIFM Directive
 UCITS V
 Specific Regulation
 AIFM1 directive proposal (April 2009) aims create a common set of rules in terms
of licensing and supervision for European investment managers of non-UCITS
invesments funds.
 Once licensed as Alternative Investment Funds (AIFs), the funds will benefit from
a European Passport for cross-border distribution to EU professional investors.
 Main features (especially regarding microfinance):
• Creation of a European passport for microfinance funds
• Indirect regulation: regulation of the managers rather than the products
• Wide scope: regulation covering many different types of funds (hedge
funds, private equity funds, etc.)
• Insufficient consistency with other EU regulations, especially with UCITS
directives
• Not allowing distribution for retail investors: professional investors only
• Short or mid-term solution
1 Alternative Invesment Fund Managers
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Different solutions:
Different ways to regulate:
Regulation under UCITS V
 AIFM Directive
 UCITS V
 Specific Regulation
 Main features (especially regarding microfinance):
• Creation of a European passport for microfinance funds
• Direct regulation: regulation of the funds themselves
• General scope: regulation covering all the invesment funds without
taking into account specificities of the microfinance sector
• Allowing distribution for retail investors
• Long term solution
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Different solutions:
Different ways to regulate:
Building of a specific regulation
 AIFM Directive
 UCITS V
 Specific Microfinance Regulation
 Main features (especially regarding microfinance):
• Creation of a European passport for microfinance funds
• Direct regulation: regulation of the funds themselves
• Specialized scope: regulation covering only microfinance funds and
taking into account specificities of the microfinance sector
• Allowing distribution for retail investors
• Long term solution
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Comparative Analysis regarding
regulation objectives
Solutions
Achievement in
terms of
coherence and
opportunities
Actors
concerned by
the regulation
Outreach &
distribution
Position
regarding
microfinance &
its specific
features
Current Situation
No harmonization
or EU passport
« law of the
jungle »
Depending on
national
regulations
Institutional &
private investors
Not specialised
AIFM
EU passport &
acces to crossborder market
Asset managers
(investment
managment
companies)
UCITS V
EU passport &
access to crossborder market
Funds
(invesment
products)
Specific
Microfinance
Regulation
EU passport &
access to crossborder market
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Funds
(invesment
products)
Institutional &
private investors
Not specialised
Institutional,
private & retail
investors
Not specialised
Institutional,
private & retail
investors
Specialised
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Contacts of the Action Group
 Emmanuel de Lutzel – Chairman
Head of BNP Paribas Microfinance Group
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+33 1 43 16 81 39
 Loïc de Cannière – Co-chairman
Managing Director of Incofin Investment Management
[email protected]
+32 3 829 25 62
 Bernard Coupez – Special Adivser
BNP Paribas Asset Manager in charge of regulatory monitoring
[email protected]
+33 1 58 97 29 89
 Christoph Pausch
Executive Secretary of the European Microfinance Platform
[email protected]
+352 26 27 13 55
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