Impact in Microfinance

The issue

An estimated 2.7 billion people, or close to half the world’s population, have no access to formal financial services. They are unable to open a bank account, negotiate a loan to start a business, or buy insurance. There still is a long way to go to make sure that everyone, everywhere, has access to a diverse range of financial services. Access to these financial services has a fundamental impact on the lives of millions of people. It enables them to build their assets gradually, develop microenterprises, and improve their income earning capacity, to help save for school fees and provide a financial cushion for the future.

In the past ten years there has been a tremendous growth of a diverse range of financial services offered to poorer people by an increasing number and variety of financial institutions. There are a lot of successes to highlight but also significant challenges to deal with. Many people remain excluded. A global financial industry that’s focused on the poor majority is still in its adolescence. As it matures it must address its challenges in a balanced way. As microfinance becomes integrated into mainstream financial systems, it also faces problems found in the finance industry in general. In some countries aggressive growth and increased competition has led to the financial system overheating and over-indebtedness of clients. Because not everyone chooses to focus on serving clients well.

Triodos Bank’s vision

Triodos Bank has been one of the leading investors in the microfinance sector since making its first investments in the industry in 1994. We recognized that sustainable development, and addressing poverty issues in particular, was a global issue and have married our banking expertise to the microfinance movement ever since.

Over the past ten years we have seen microfinance rapidly evolve and expand. Following the United Nations International Year of Microcredit in 2005, 2006 was marked by Muhammad Yunus and Grameen Bank winning the Nobel Peace Prize. Many national governments have come to recognize the importance of building inclusive financial sectors – where the majority of people have access to financial services. The financial inclusion gap has appeared on the agenda of the United Nations and G20, for example. At the same time, in recent years donors and investors have recognized the potential for social and financial returns from microfinance, and increasingly direct funding towards it.

More and more capital has entered the microfinance market in recent years, with mixed results. The arrival of new investors hungry for short-term profits can force microfinance institutions to put aggressive growth before the interest of their clients. In some countries this has led to over-indebtedness of microfinance clients.

As an investor we can influence the direction the industry takes. We share this responsibility with everyone involved in the value chain – microfinance institutions and other stakeholders – to understand, acknowledge and act in the interests of the clients; clients, who are typically living on low-incomes and constrained by limited financial knowledge, power and influence. Focusing on the interests of these individuals and their families is the only way to achieve long term sustainable financial results.

To help shape an inclusive financial services industry that keeps the client’s interests at its core, a group of investors, including Triodos Investment Management and Her Royal Highness Princess Máxima of the Netherlands, UN Secretary-General's Special Advocate for Inclusive Finance for Development, worked together to draft Principles for Investors in Inclusive Finance, during 2010. These investors believe that specific principles for investors in inclusive finance, of which microfinance is a part, will strengthen the movement towards responsible finance. The principles have been developed with a broad group of stakeholders including UNPRI (United Nations Principles for Responsible Investment Initiative) and were launched in 2011.

So what does Triodos Bank do about it?

Since 1994, we have built a EUR 250 million portfolio in the microfinance sector, making us one of the leading investors in the industry. We focus on long-term relationships, based on transparency and fairness, and a shared commitment to relieving poverty and caring for the planet. Recognition for our track record as a values-driven investor in the microfinance sector came in 2010 when CGAP (Consultative Group to Assist the Poor) announced Triodos Investment Management as one of three best in class microfinance asset managers. Through specialised microfinance funds1 – Triodos-Doen, Hivos-Triodos Fund, Triodos Fair Share Fund and Triodos Sicav II-Triodos Microfinance Fund – we provide finance to over 85 different emerging and well-established microfinance institutions across 43 countries. Each demonstrates a sustainable approach to providing financial services to underserved client groups. We hold equity stakes in 19 leading microfinance institutions and play an active role on the Board of Directors – a platform to share our knowledge and expertise about sustainable banking. The microfinance institutions in our portfolio reach 7.4 million borrowers, of which 67% are women, 54% of whom live in rural areas, and 5.2 million are savings clients.

1 The funds are managed by Triodos Investment Management, a 100% subsidiary of Triodos Bank.

Figures

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2010
Amounts in thousands of EUR

Hivos – Triodos Fund

Triodos – Doen Fund

Triodos Fair Share Fund

Triodos SICAV II – Triodos Microfinance Fund

 

 

 

 

 

Total amount

46,855

72,405

78,509

50,819

Number of institutions financed

40

51

38

22

 

 

 

 

 

 

 

 

 

 

2009
Amounts in thousands of EUR

Hivos – Triodos Fund

Triodos – Doen Fund

Triodos Fair Share Fund

Triodos SICAV II – Triodos Microfinance Fund

 

 

 

 

 

Total amount

42,560

60,229

60,424

21,892

Number of institutions financed

44

49

29

12

 

 

 

 

 

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