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Responsible Investing is a process in which the Environmental, Social and Governance (ESG) criteria are taken into account along with the usual financial criteria. Part I deals with listed RI (SRI funds and stocks) : Is it still a credible alternative against the mainstream ? Part II deals with microfinance. Part III deals with impact investing, as direct investment in not-listed companies The author, Xavier Heude has been entirely dedicated to the development of Responsible Finance by the mean of promoting Impact Investing, mainly. He is convinced that Private and Institutional investors are growingly interested in putting some part of their money in business activities or projects where they can themselves follow up the financial performance, and last but not least, the social and environmental outcomes generated. He is Co-founder of meso IMPACT Finance, a Luxembourg-based holding company aimed at taking stakes in SMEs that generate a social and environmental (measurable) impact. MIF helps them develop through a financial and extra-financial support (i.e. technical assistance). He is also Délégué Général of SAKURA Initiative, a Luxembourg-based not-for-profit organisation promoting social and responsible practices in the economic and financial sector, through various means such as conferences and communication. Xavier Heude founded also the “PEERS Direct Investment” – registered trademark in 2011, after having stated for many years, that there are still quite few incentives and operational frameworks and guidelines allowing and encouraging a large public to invest in socially responsible business activities or to support valuable social initiatives. A network is being built, in order to contribute to expand the mark and get it known worldwide.
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Microfinance Concept – Investment vehicules and framework –
Microfinance in the field …
Xavier Heude [email protected]
2nd update - March, 2015
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History
What is microfinance ?
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Pope Leo X authorises the Mont de Piété to charge interest to cover their costs
Ireland : small unsecured loans are developed for the very poor farmers
An Italian monk creates the first official European Mont de Piété in order to counteract “loan-sharks”
HISTORY of MICROCREDIT
Financial cooperative systems grow in Europe and North America
1472
1515
1700’s
1800’s
These models are extended to Latin America 1900’s
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70’s : several experimental programmes (Grameen Bank, Sewa, Accion)
grant loans to poverty-stricken women
from MICROCREDIT … to MICROFINANCE
In the 90’s
• spread of microcredit throughout Western countries
• development of savings schemes, followed by micro-insurance
• increase in the number of operators
• diversification of the target populations
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2005 : International Year of Microcredit
2006 : Nobel Peace Prize divided into : Muhammad Yunus / Grameen Bank
« … Lasting peace can not be achieved unless large population groups find ways in which to
break out of poverty. Microcredit is one such means … »
CONSECRATION of MICROFINANCE
Income generating
activity
Wedding
1st child
Activity improvement
2nd child
Children illness
3rd child
School expenses
Funerals
Children wedding
Accident
Health problems
Source : ADA
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Thousands of operators around the world with more and more diverse profiles, and diverging interests :
Money lenders
Traditional systems
Cooperatives
NGOs
Microfinance institutions
Networks of operators
Local governmental agencies
Specialised banks
Commercial banks
Private investors
TODAY …
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Developing Countries Western Countries
Eradicate poverty Tackle marginalization and social exclusion
Get out people from the survival spiral Give people fair business opportunities
Support new businesses that have long -term impact on
people's life
Support microbusinesses that are not served by
mainstream banks
Microfinance is global
- micro-loans < EUR 25,000 tailored to micro-enterprises (91% of all European businesses) - compared to the South, the European microfinance market is a young, highly heterogeneous with growing market segment
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Job hunting support for the youth
Savings to face unexpected hardships and to secure projects in the long-term
Individualised follow-up to ensure families get the most out of their loan
Training (management, skill and social) to help loan recipients gain independence
Loans to develop an income-generating activity
MICROFINANCE SERVICES AT LARGE
Microinsurance to cover many kind of incidents
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Improve areas of activities in : 1. Financial support for clients : Products, outreach, support and other services (manage client activities more actively and respond to needs)
2. Non-financial support : Manage client evolvement, advice and support of client activites (workshops/education in accounting, agriculture and animal farming, entrepreneurship … )
3. Social services : Advice and support health and community development (family planning, drug abuse, gender empowerment, literacy, electricity, insurance … )
RESPONSIBLE microfinance
Balancing financial sustainability with social impact
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• More than 200 million beneficiaries vs. 15 millions in 2000 Potential : 500 million
• 74% of all microfinance clients worldwide are women
• Existing offer in at least 134 countries (out of 194)
Key-figures …
2.5 billion people currently excluded from the traditional banking system across the globe
50 to 70 MFIs
250 to 500 MFIs
Non-bank regulated financial institutions
Downscalling or specialized banks
NGOs, Credit cooperatives, savings houses
1.000 to 5.000 MFIs
• 10.000 MFIs worldwide (estimate)
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• +/- 2.100 institutions reporting to MIX in 2014
The 100 largest institutions outreach 77% of the borrowers
• Average loan amount (NGOs) : USD 300
Median loan amount (Banks) : USD 2.000
• Average savings amount: USD 287
… but one universal observation : microfinance still just barely reaches out to the poorest families
(2010)
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Microfinance Market Outlook 2014 No “sudden stop”: demand for microfinance soars
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The deterioration in MFI portfolio quality is related to 3 trends
1) fast expansion led to an increase in the share of wealthier and more risky borrowers
2) MFIs lack adequate risk management capacities (no centralised data => multiple
borrowing)
3) microfinance initially introduced as a development tool in a largely non-competitive setting. With increasing commercialisation and competition, the instruments used to overcome moral hazard and adverse selection became less effective.
• Rehabilitate microfinance as a development tool (cannot simply return to its origin of subsidised group-lending)
• Learning how the clients live, what they need and demand
Local deposits remain the dominant source of funding for MFIs globally
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How investing into microfinance ?
Interests Dividends
Interests Microcredits
Microfinance Institution
Microbank
Debt Equity
Microfinance Investment
Vehicle (MIV)
Micro-entrepreneurs
Modèle ADA
SICAV, FCP Part II, SICAR, FIS Securitization Vehicles
Guarantees & guarantee funds
80 MIVs surveyed out of the 106 MIVs identified
Assets Under Management in USD Billion (2013)
Volume of private cross-border investments in microfinance
MIV Total Asset Growth
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In 2013, the 80 participating MIVs were managed by 44 asset managers (which are currently located in 15 different countries)
responsAbility (CH) KfW (D) Triodos IM (NL)
MIV Inception and Targeted Closing Dates
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2013 Symbiotics MIV Survey
(2010)
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MIV Growth Drivers Transparency - increased MFI & MIV data / oversight via
MIX-Market, CGAP, LuxFLAG … Investors seeking relatively uncorrelated assets
Survey conducted in January and February 2014 and is based on 306 responses from 70 countries
2013 Financial Performance – Leveraged Vehicles (Fixed Income Funds and Mixed Funds included) Sample size in brackets
2013 Financial Performance – Unleveraged Vehicles Sample size in brackets
Geographical Allocation 2013 vs. 2012
Geographical Allocation: % of Direct Investees (microfinance investees)
Calculation based on a constant sample of 47 MIVs over the period 2010-2013
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A microfinance programme in Vietnam
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Case study
Chi-Em (Dien Bien Phu), 20-27th June’09
- Field analysis
Methodology applied - Interviews with villagers (8 clients, 20 non-clients) - Participation in village workshop (introduction of Chi-Em and loan program) - Observation of operations in branch offices and field activity : > processing of client information > identification of potential clients > administrative tasks > analysis of client database / reporting tools - Discussions with Phan Thị Tuyết Thanh (Country Director), Hoang Thi Ven (Branch Manager) and field staff - Overview of village needs and surrounding areas
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Chi-Em (Dien Bien Phu), 20-27th June’09
- Field analysis
Portrait 1 / Mrs. Oanh Loan : 1.500.000 VND (60 €), 6 months maturity, 1% interest, 2nd loan cycle Usage : purchase of animal stock (fish, chicken) and rice cultivation Approx. income p/month from loan : 180.000 VND (7,20 €), plus additional gains No repayment difficulties so far, seems to be on a good way
Meet the clients….
Mrs. Oanh - Houi Le B village (commune of Noong Het, Dien Bien district) – June ‘09
Case study
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Capacity building : 8 workstreams 1. Client data collection (structure)
2. Client support – non-financial services (training & technical assistance)
3. Development of new products & services (financial)
4. Internal organisation of the program 5. Human resources policy 6. Internal control / MIS (management information system)
7. Business development (clients) & networking 8. External communication
Funding : Loan capital
Case study
Chi-Em (Dien Bien Phu), 20-27th June’09
- key findings
Chi-Em offices in Dien Bien district) – June ‘09
PAT – Poverty Assessment Tool
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Assessment of the poverty level
LOAN application form
Client Database
Credit database
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Promotion -
tuyên
truyền
Orientation -
tập huấn
Partnership
Registration-
đăng kí k.hàng
Loan Application-
đơn vay vốn
Home Visit-
thăm nhà k.h
Credit
Committee-Họp
ban tín dụng
Loan Approval and
Rejection- Đồng ý
cho vay hoặc từ chối
Bank withdrawal to
replenish the vault-
rút tiền bổ sung két
Loan Disbursement-
giải ngân vốn vay
Loan Repayment and Mandatory
Savings collection-hoàn trả vay nợ và
thu t.kiệm bắt buộc
Voluntary Savings deposit-
gửi tiết kiệm tự nguyện
Voluntary Savings Withdrawal-
rút tiết kiệm tự nguyện
Bank Remittance after
collection-gửi n.hàng
sau khi thu
Closing the Loan and
Mandatory Savings transfer-
k.thúc món vay và chuyển
tiết kiệm BB
Collection transferred to
the CCO-chuyển tiền thu
được tới CCO
LPF LPF
LPF LPF LPF LPF
LPF
LPF
LPF
LPF
Loan Utilization Check and
PAT- kiểm tra sử dụng vốn
vay+ PAT
LPF
LPF
Monthly Collection Meeting by
the Cluster Head-
thu tiền hàng tháng bởi cụm
trưởng
LPF
Credit request workflow
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REPORTING
LOAN PROCESS
IDENTIFICATION CLIENT
TRAINING
Promotion Identification /
objectif de la
formation
Sélection des
participants Organisation
Prospects
Ouverture du
prospect
Activation du
client
Analyse Décaissement Collecte
Collecte de
l’information par
district Réalisation Distribution
Pro
cess
us
Mé
tie
r P
roce
ssu
s Su
pp
ort
I - Workflows
Modifications des
données client
Clôture du
compte
Dépôt retrait Clôture
• Crédit
• Épargne
Training supports to credit beneficiaries
Training supports to beneficiaries
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Portfolio size reference table
Staff incentives
Amount to be taken into account for portfolio size (basic amount for bonus
calculation)
CH 3 000 VND
CCO 500 VND
Step 1 Step 2 Step 3 Step 4
Example If number of active clients at the end of the month = 80
If PAR 30 at the end of the month =1,5%
If Voluntary savings balance at the end of the month = 1,500,000 VND
Total bonus of the month
Cluster Head 80*3000 VND = 240,000 VND
20% increase = 240,000*1.2= 288,000 VND
1,500,000 * 2% = 30,000 VND
=80*3,000*1.2+30,000= 318,000 VND
Cluster Head •Cluster Head bonus = 3,000 VND * number of active borrowers * PAR 30 adjustment percentage (see PAR adjustement reference table) + 2% of voluntary savings balance. Example:
Portfolio quality
increase or decrease
PAR 30 = 0% 1.4
PAR 30 < 1% 1.3
PAR 30 < 2% 1.2
PAR 30 < 3% 1
PAR 30 < 5% 0.6
PAR 30 >= 5% 0.3
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Training bonus reference table
Number of trainees for TO
Bonus for TO Bonus for NFSM
From 80 50000 VND 30000 VND
From 100 75000 VND 50000 VND
From 120 100000 VND 75000 VND
From 130 125000 VND 100000 VND
From 140 150000 VND 120000 VND
Step 1 Step 2 Step 3
Example If number of active trainees at the end of the month = 130
If number of client visited= 80
Total bonus of the month
TO 125,000 VND (80-40)*2500=100,000
=125,000+100,000= 225,000 VND
•Training Officer = bonus based on number of trainees (see reference table) + bonus on the number of non compulsory visits (see reference table)
minimum number of non compulsory visits conducted
by TO
Amount to be received per additional client visit
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2 500 VND
Staff incentives
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Risks registar
Risk Rating: 1= Low, 2=Medium, 3= High Examples Example
RISK NO. Risk Rating Risk Description Type of PROCESS
Type of DEPARTMENT
R001 3 Wrong processing of data during Mbwin Conversion. System Conversion MIS
R002 3 Discrepancy in Loan and Saving ledger balances due of data processing in different system. System Conversion MIS
R003 2 Risk of failure of product in a new market. Launching new product Operation R004 3 Risk of non-recovery in a new branch area. Entering new market Operation
R005 2 Risk of non-availability of secure office place in new branch area. Opening new Branch Operation
R006 2 Risk of non-availability of qualified? staff in new market or branch area. Opening new Branch HR
R007 3 Failure of new loan or saving product Launching new product Operation R008 3 Risk of wrong selection of clients Loan Origination Operation R009 3 Risk of moving away from target client Loan Origination Operation
R010 3 Risk of moving away from organizational stated goals and mission
Loan Origination, Launching new product, Opening new branch offices Operation
R011 3 Risk of wrong appraisal of borrowers repayment capacity. Loan appraisal Operation
Internal Audit Category of risks
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