The Art of the Responsible Exit in Microfinance Equity Sales

This paper seeks to explore the concept of a responsible exit along four strategic decisions: the timing of the equity sale, buyer selection, the governance and use of shareholder agreements to achieve social objectives, and how social and financial returns are balanced when selecting among bids. The paper also examines how development finance institutions (DFIs) can use exits to encourage responsible market development given their role as publicly funded entities. More than 40 representatives from MFIs, DFIs, NGOs, and other organizations were interviewed to capture their experience, perspectives, and emerging lessons on equity sale transactions. Key findings include:

• Desired timing and avenue of exit should form a key part of an investor's decision to invest. These plans and preferences should be discussed with the other equity investors and the MFI's management;
• Putting provisions in shareholder agreements and setting up alternative mission-oriented governance structures could help enshrine the MFI's mission and social commitments to send an important signal to potential investors;
• Many investors currently may be using a two-step process in which they first screen buyers for suitability (including mission fit) and then make their final selection based on the most attractive price.