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.

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.

While there still is a long way to go to make sure that everyone, everywhere, has access to a diverse range of financial services, the past ten years have seen a tremendous growth of financial services offered to poorer people by an increasing number and variety of financial institutions.

The industry has proven that low income populations are bankable and can be offered financial services in a sustainable way. On the back of the microfinance industry's success, commercial banks in developing countries have partnered with microfinance institutions to reach lower income customers. While in some markets, microfinance institutions (MFIs) have transformed into licensed banks, allowing them to further expand their services to small and medium-sized enterprises or by providing mortgages.

However, significant challenges remain, not least because millions of people are still excluded. As the microfinance sector becomes integrated into mainstream financial systems, it also inherits many of the industry’s existing problems. In recent years new investors hungry for short-term profits, aggressive growth and increased competition led to the financial system overheating, the over indebtedness of clients and some institutions closing. Growth and profitability was put before the interests of microfinance clients prompting questions about the wisdom of prioritizing financial gain over sustainable development.

As the industry matures it must address its challenges in a balanced way in order to shape an inclusive financial services industry that keeps the interests of its low-income clients at its core.

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. Many national governments across all continents 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. Increasingly, investors have recognized the potential for social and financial returns from microfinance, and direct funding towards it.

As an investor we can influence the direction the industry takes. We share this responsibility with everyone involved in the value chain – investors, 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. 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 January, 2011. By the end of the year 55 global investors had signed up to the principles. Marilou van Golstein Brouwers, Managing Director Triodos Investment Management, Chairs the Principles for Investors in Inclusive Finance steering committee.

Triodos Bank supports the sector in other ways too; it recognises that we live in an interconnected world, where changes in one country – such as economic crises – can have a profound impact on the other side of the globe. These connections also present enormous opportunities, so Triodos Bank co-founded the Global Alliance for Banking on Values in 2009, a network of banks promoting the use of finance to deliver sustainable development for unserved people, communities and the environment.

So what does Triodos Bank do about it?

Since 1994, our assets under management in the microfinance sector have increased to EUR 360 million, making us one of the leading investors in the industry.

We focus on long-term relationships, based on transparency and fairness, with microfinance institutions that demonstrate an on-going commitment to social and environmental performance. 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 95 different emerging and well-established microfinance institutions across 43 countries. We hold equity stakes in 19 leading microfinance institutions and banks and play an active role on the Board of Directors – a platform to share our knowledge and expertise about sustainable banking.

Each microfinance institution in our portfolio demonstrates a sustainable approach to providing financial services to underserved client groups. We have developed a Sustainability Management System that tracks the standards and guidelines drawn up by the CGAP Social Performance Task Force, a group in which we play an active role, so we can effectively analyse, monitor and report on the non-financial performance of the microfinance institutions in our portfolio. MFIs are evaluated on four dimensions: products and services, responsible banking, environment and social responsibility. We work together with our clients to shape the direction of the industry to address key strategic challenges, such as supplying finance for renewable energy projects or sustainable agriculture practices. This is an important part of the strategy for Triodos-Doen and Hivos-Triodos Fund in particular.

The microfinance institutions we finance reach 7.9 million borrowers, of which 66% are women, and 46% of whom live in rural areas.

A short description of all MFIs in our portfolio and a number of key indicators can be viewed at Know Who We Finance.

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

Figures

  (XLS:) Download XLS

2011
Amounts in thousands of EUR

Hivos – Triodos Fund

Triodos – Doen Fund

Triodos Fair Share Fund

Triodos SICAV II – Triodos Microfinance Fund

 

 

 

 

 

Assets under management

68,143

82,235

121,111

91,679

Number of institutions financed

44

59

43

28

 

 

 

 

 

 

 

 

 

 

2010
Amounts in thousands of EUR

Hivos – Triodos Fund

Triodos – Doen Fund

Triodos Fair Share Fund

Triodos SICAV II – Triodos Microfinance Fund

 

 

 

 

 

Assets under management

47,816

76,538

93,475

59,977

Number of institutions financed

40

51

38

22