Microfinance: a dynamic and fast-changing sector
In his editorial, Jean-Luc Perron, vice chairman of Convergences, gives an overview of a sector with annual growth of over 9% in the global portfolio of loans and the number of active borrowers. Still, some two billion adults today don't have access to a financial institution.
Other figures, however, reveal a very buoyant sector. There were 123 million customers at microfinance institutions worldwide in 2016, for a loan portfolio of $102 billion. India was the leader in terms of microfinance in 2016, with 47 million borrowers and roughly $15 billion in outstanding loans. Vietnam was second, followed by Bangladesh, Peru and Mexico.
The ranking shows strong momentum in southern Asia. The region accounts for roughly 60% of all borrowers and has the highest growth in terms of loans, up 23.5% in 2016. Latin America and the Caribbean are also highly active in microfinance, with $42.5 billion in outstanding loans, compared with $9.3 billion in Europe and $8.7 billion in Sub-Saharan Africa.
Women: drivers of diversification in microfinance
Most borrowers are women living in rural areas. They made up 84% of borrowers in 2016, with people in rural areas representing roughly 60% of the market.
The 2017 Microfinance Barometer also takes an in-depth look at microfinance institutions that provide services other than just lending, which are equally as important for borrowers. The types of services include deposits (55%), non-financial services relating to health, education, entrepreneurship and empowerment of women (42%) and top-up insurance services (18%).
In its section on Europe, the Barometer takes a close look at a continent where microfinance is dominated by professional microlending, and which has seen steady 12% growth from 494,781 microloans granted in 2014 to 552,834 in 2016.
This same momentum can also be seen in France, a unique market where the rate of occupational integration for borrowers is 91% for entrepreneurs and 65% for individuals.
Most borrowers are women living in rural areas.
Synergies between microfinance and impact investing: at a crossroads
The 8th edition of the Barometer offers an in-depth special report on the synergies between microfinance and impact investing.
The situation resembles a crossroads, with a mature microfinance sector on the one hand, and impact-investing opportunities that still need to be defined on the other. A group of 200 investors sharing their data with the Global Impact Investing Network said they invested roughly 60% of their assets in microfinance and other financial services in 2016. That's far ahead of the impact-investing sectors, such as agriculture, energy and health, all of which were below 10%.
But things could change. The strategy of investors is increasingly influenced by the 17 SDGs, which aim to reduce poverty and protect the environment. The maturity of the microfinance sector is also pushing investors to diversify, as are technological advances in developing countries, which give a boost to projects financed by impact investing.
The situation raises fundamental questions that everyone is trying to answer: can microfinance be a source of inspiration for impact investing? How can we measure an investment's social performance? What challenges will microfinance face in terms of growth in the countries where it is used? Jean-Michel Servet, honorary professor at the Graduate Institute of International and Development Studies, addresses all of these issues. He looks at the close relationship between impact investing and microfinance, the future challenges for these sectors—which are based on synergies with public action—and how to measure a project's actual impact.
A number of global trends can be seen in specific cases. The first example is Banco da Familia, a Brazilian MFI. According to a study funded by BNP Paribas, 79% of Banco da Familia's customers increased their income between the first and last loan contracted with the organisation. That's a big achievement, especially considering that 87% of the customers said their standard of living improved.
Another good example is M-Kopa Solar, a Kenyan social enterprise whose business model is based on the principle of "pay as you go". The company offers customers solar panels, lamps, phone chargers and radios for just 50 cents. It has roughly 250,000 outstanding loans, 92% of which are in a positive situation. It also raised nearly $7 million between 2015 and 2016.
The boundary between impact investing and microfinance is getting thinner. And this phenomenon is giving rise to new opportunities in both fields.