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Small Money Big Impact: Fighting Poverty with Microfinance

ISBN: 978-1-119-33820-8
272 pages
May 2017
Small Money Big Impact: Fighting Poverty with Microfinance (1119338204) cover image

Description

Make your money make a difference—and enjoy attractive returns

Small Money, Big Impact explores and explains the globally growing importance of impact investing. Today, the investor's perspective has become as important as the actual social impact. Based on their experience with over 25 million micro borrowers, the authors delve into the mechanics, considerations, data and strategies that make microloans and impact investing an attractive asset class. From the World Bank to the individual investor, impact investing is attracting more and more attention. Impact investing is a global megatrend and is reshaping the way people invest as pension funds, insurance companies, foundations, family offices and private investors jump on board. This book explains for the first time how it works, why it works and what you should know if you're ready to help change the world.

Impact investing has proven over the last 20 years as the first-line offense against crushing poverty. Over two billion people still lack access to basic financial services, which are essential for improving their livelihood. Investors have experienced not only social and environmental impact, but have received attractive, stable and uncorrelated returns for over 15 years. This guide provides the latest insights and methodologies that help you reap the rewards of investing in humanity.

  • Explore the global impact investing phenomenon
  • Learn how microloans work, and how they make a difference
  • Discover why investors are increasingly leaning into impact investing
  • Consider the factors that inform impact investing decisions

Part social movement and part financial strategy, impact investing offers the unique opportunity for investors to power tremendous change with a small amount of money— expanding their portfolios as they expand their own global impact. Microfinance allows investors at any level to step in where banks refuse to tread, offering opportunity to those who need it most. Small Money, Big Impact provides the expert guidance you need to optimize the impact on your portfolio and the world.

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Table of Contents

Foreword ix

Preface xi

Acknowledgments xiii

About the Authors xv

CHAPTER 1 Introduction 1

1.1 Fighting Poverty 2

1.2 Investing in Financial Infrastructure 7

1.3 Content Overview 8

Notes 9

CHAPTER 2 Microfinance – the Concept 11

2.1 History 12

2.2 Definition and Goals 15

2.3 Double Bottom Line 18

2.4 Financial Inclusion 21

2.5 Market Participants 24

2.6 Impact Investing 25

2.7 Preliminary Conclusions 29

Notes 31

CHAPTER 3 The Microfinance Value Chain 33

3.1 The Protagonists and Their Tasks 34

3.2 Regulatory Environment 36

3.3 Development Finance Institutions 37

3.4 Market Overview 39

3.5 Geneva: Birthplace of Modern Microfinance 42

3.6 Preliminary Conclusions 46

Notes 47

CHAPTER 4 Micro Entrepreneurs 49

4.1 Definition 50

4.2 Needs and Requirements 52

4.3 Micro Entrepreneurs 59

4.4 Preliminary Conclusions 67

Notes 68

CHAPTER 5 Microfinance Institutions 71

5.1 Definition and Goals 72

5.2 Types of MFIs 73

5.3 MFI Funding 76

5.4 Services 85

5.5 Regulation 88

5.6 Preliminary Conclusions 94

Notes 96

CHAPTER 6 Lending Methodologies 99

6.1 Traditional Credit Theory and Microfinance 100

6.2 Lending Methodologies 101

6.3 Socio -Economic Factors 104

6.4 Late Payments and Over -Indebtedness of Clients 108

6.5 Default Prevention and Restructuring 110

6.6 Occupation: Loan Officer 113

6.7 Preliminary Conclusions 114

Notes 116

CHAPTER 7 Loan Pricing 119

7.1 Interest Rate Components 120

7.2 Setting Sustainable Interest Rates 127

7.3 Regional Differences 127

7.4 Loan Recipients’ Willingness to Repay 129

7.5 Preliminary Conclusions 130

Notes 132

CHAPTER 8 Social Performance Management 133

8.1 Social Performance 134

8.2 Measuring Social Performance 135

8.3 Measuring the Outcome of Microfinance 149

8.4 Social Rating Agencies 151

8.5 Technical Assistance 153

8.6 Linking Social Performance with Profitability 156

8.7 Preliminary Conclusions 157

Notes 159

CHAPTER 9 Beyond the Reach of Microfinance? 161

9.1 Prejudices and Reservations 162

9.2 Preliminary Conclusions 171

Notes 172

CHAPTER 10 Investing in Microfinance 175

10.1 Market Development 176

10.2 Microfinance Investment Vehicles 177

10.3 The Investment Process 181

10.4 Loan Agreements and Pricing Policy 187

10.5 Microfinance in the Overall Investment Portfolio 191

10.6 Incentives for Investing in Microfinance 195

10.7 Preliminary Conclusions 197

Notes 199

CHAPTER 11 Real and Financial Economy 201

11.1 Microfinance Is Crisis -Proof 202

11.2 Real Economy and Local Influencing Factors 203

11.3 Financial Economy 205

11.4 Stability Mechanisms 207

11.5 Preliminary Conclusions 208

Notes 209

CHAPTER 12 Discussion of Results and Conclusions 211

12.1 Win -Win -Win 212

12.2 Onwards and Upwards 212

Notes 215

APPENDIX A Example of a Loan Application 217

APPENDIX B Due Diligence of Socio -Economic Impact Factors 221

List of Abbreviations 227

Glossary 229

References 233

Photo Credits 243

Index 245

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Author Information

PETER A. FANCONI is the Chairman and former CEO of Swiss-based BlueOrchard Finance, one of the leading asset man- agement companies in impact investing. Peter demonstrated his entrepreneurial and social competences in various positions, including CEO of the Vontobel Private Bank, CEO of Harcourt Alternative Investments and managing partner at PwC. He also serves as Chairman of Swiss bank Graubündner Kantonalbank (GKB) and as board member of academic and charitable institutions worldwide. Peter is a renowned lecturer and published writer in the field of finance and impact investing.

PATRICK SCHEURLE is the CEO of Blue-Orchard Finance. Prior, he acted as COO and CFO at BlueOrchard. His broad experience in finance includes senior positions at Bank Vontobel and Credit Suisse. He further served with a leading management consultancy focusing on governance and value creation. Patrick holds a PhD in finance from the University of St. Gallen, Switzerland, where he also held an assistant professorship. He is the author of several well-known finance books and regularly publishes on developments and research in impact investing.

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