Caveat Venditor: Towards a Conceptual Framework for Buyer Selection in Responsible Microfinance Exits

Caveat Venditor: Towards a Conceptual Framework for Buyer Selection in Responsible Microfinance Exits goes beyond raising questions, and seeks to provide a template to help investors navigate the complex terrain of “responsible exits.” The paper is co-authored by Daniel Rozas and Sam Mendelson and is part of a joint research project on buyer selection in responsible exits of NpM, Netherlands Platform for Inclusive Finance, along with the Financial Inclusion Equity Council (FIEC) and the European Microfinance Platform (e-MFP). Caveat Venditor focuses on one particularly tricky part of the exit process – selecting a buyer that is suitable for the microfinance institution (MFI), its staff and ultimately its clients.

With the growing maturity of the microfinance industry, a question that has come into sharper focus is how social investors committed to advancing responsible finance practices should “exit responsibly” from the microfinance institutions (MFIs) – and, increasingly, the broader category of financial service providers (FSPs) and other companies working in financial inclusion – in which they have invested.

Leveraging an industry consultation process, Daniel and Sam have consolidated investors’ own emerging principles and procedures in assessing potential buyers, and used the findings to produce a Conceptual Framework for Buyer Selection in financial inclusion equity exits. This framework serves as a resource for investors embarking on an equity sale, providing them with a concrete, industry-recognized framework to evaluate an exit. Additionally, it can:

  • Guide investor discussions with external organizations that assist them in exit trajectories (investment banks, advisory firms, etc.);
  • Assist new categories of impact investors that have little experience in exits; and
  • Serve as a guide to potential buyers to help understand selection criteria and prevent interested (but unsuitable) buyers from spending time on a futile due diligence process.

During the course of the research, a majority practice and opinion emerged (what we call the First, Do No Harm consensus), alongside dissenting voices that argue for an inversion (what we call, continuing the medical analogy, the Best Interests approach) of some of the processes and presumptions of this majority perspective. As a result, we have moved beyond just reporting what existing industry practice is, to incorporate in the output of this paper – the Conceptual Framework for Buyer Section – not only what is commonplace, but also what industry practice could – and perhaps should – look like.

 

 

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