Microfinance funds
Microfinance funds are investment funds that invest their fund assets in microfinance institutions (MFIs). MFIs mostly grant microcredits to micro-businesses in emerging and developing countries. Depending on the country of lending, microloans can range in size from $ 20 to several hundred dollars. Microfinance funds grant loans to MFIs or invest in their equity.
Refinancing options for MFIs
Initially, MFIs refinanced themselves through donations, subsidies and, in some cases, through customer savings deposits. With increasing commercialization of an institute, subsidized loans (e.g. from international development organizations), the raising of outside capital at market conditions or the raising of equity capital also come into question.
Types of microfinance funds
Different microfinance funds can be categorized into three different groups:
- Microfinance fund with development policy goals
- Microfinance fund with a dual investment objective
- Microfinance funds with commercial objectives
What goals a fund pursues depends on the fund's investors. Development institutes, private donors or non-governmental organizations usually invest funds with development goals. Investors with a dual investment objective who want to achieve a social and a financial return usually concentrate on funds in the second category. Private and institutional investors prefer commercial microfinance funds. The first microfinance funds emerged in the 1970s, for example the Oikocredit World Partnership Investments fund, which is mainly motivated by development policy. Microfinance funds with commercial objectives have only been around for a few years. Examples are the Dual Return Fund - Vision Microfinance, funds from responsAbility or the Dexia Micro Credit Fund.
Risk / return profile
The returns on microfinance funds have been relatively stable in recent years since their inception. The Swiss investment advisor Symbiotics has developed a benchmark for microfinance investments that comprises six different funds and has been showing the development of returns since 2004.
Due to the young age, especially of commercially oriented microfinance funds, there is no unanimous opinion about the risk / return profile. It is believed that microfinance funds could be useful for diversifying portfolios. A 2008 study examined the effect of adding 5% to 10% of the portfolio value to microfinance funds in a portfolio of stocks, bonds, hedge funds and money market paper. The result showed a low correlation between microfinance funds and other asset classes . According to this study, the return on the portfolio can be increased slightly if the cash component is reduced in favor of the microfinance component.
Social return
For a large proportion of microfinance investors, the social return is the deciding factor when choosing a microfinance fund. That is why investors in capital investment companies are increasingly expected to be accountable for the social return on investments. This is more difficult to measure than the financial return and there are still no standardized indicators. Most funds provide investors with monthly information about the number of MFIs in the portfolio, the number of countries, the micro-entrepreneurs reached by the fund, the proportion of women among customers or the average loan volume. It is also believed that microfinance funds have a positive impact on medical care, schooling, nutrition or the position of women in the families of microfinance clients.
Microfinance funds in the financial crisis
The presumption that microfinance funds might have a low correlation to other asset classes was confirmed to a certain extent during the financial crisis. The commercial funds that are part of the Symbiotics Microfinance Index ( responsAbility Global Microfinance Fund , Dexia Micro-Credit Fund, BBVA Codespa Microfinanzas, St. Honoré Microfinance, Dual Return Fund Vision Microfinance, Wallberg Global Microfinance Fund) recorded steady growth. A study by the public-private organization for the promotion of microfinance Consultative Group to Assist the Poor (CGAP) shows that the volume of microfinance funds grew by 32% during 2008, with an average return of 5.5%. In addition, eleven new microfinance funds have been created since the Lehman Brothers bankruptcy. Nevertheless, the CGAP is forecasting slower growth and lower returns for microfinance funds for the second half of 2009. This has to do with the fact that most MFIs' portfolio at risk of default increased in the first quarter of 2009.
Distribution of funds
In Germany, microfinance funds have been approved for public distribution as a new fund category since the amendment to the Investment Act in 2007. However, the restrictions of the law are so restrictive that so far no pure microfinance fund has been approved. Microfinance funds, which are mostly set up in Luxembourg, are still only available through private placement . The minimum deposit for private investors is usually around € 1,000. The investments are usually tradable once a month.
criticism
Of around 10,000 MFIs worldwide, only a few hundred are able to raise funds in international financial markets. The fact that more and more financial resources are invested in microfinance funds creates the risk of excessive competition between the funds, which could lead to the careful selection of MFIs being neglected. The increasing commercialization of the microfinance sector is also criticized. It is feared that the social goals of microfinance, i.e. the fight against poverty, could become less important as a result of the greater emphasis on financial goals.
Individual evidence
- ↑ Oehri, O., & Fausch, J. (number October 6, 2008). Microfinance Investment Funds - Analysis of Portfolio Impact. Geneva Papers On Inclusiveness, No. 6. Geneva.
- ↑ Archived copy ( Memento of the original from May 4, 2010 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
