Our flagship Incofin Climate-Smart Microfinance Fund (ICMF) has made its first investment: USD 2 million in Bank Arvand, Tajikistan.  

ICMF sets its focus on the social aspects of climate change. The fund invests in those who must address the impacts of climate change, even though they may not be the ones responsible.  

With Tajikistan, we see a relatively green country with hydropower electricity systems, yet the risks posed by climate change are real and imminent. 

Understanding Tajikistan’s Climate Challenges

Tajikistan’s environmental landscape presents a unique set of challenges. Rising temperatures, increased aridity, and the threat of flooding pose significant risks to both livelihoods and ecosystems. It is important that proactive measures are taken to mitigate these risks and foster adaptation efforts.  

Bank Arvand: Leading the Charge in Green Finance 

Bank Arvand stands at the forefront of green finance in Tajikistan. Founded with a mission to provide financial inclusion to marginalized communities, the bank has embraced sustainability as a core principle. When the CEO, Shoira Sadykova, visited our offices last week, we learned about how ICMF funds are being put into action, in the context of Bank Arvand’s journey.

Impact of the Incofin Investment 

The recent investment of USD 2 million from ICMF has catalyzed Bank Arvand’s efforts to scale up its green finance initiatives. By providing critical funding resources, the fund has helped Bank Arvand to expand its reach and support a broader range of climate-smart projects.  

Behind every loan is a story of transformation. Bank Arvand’s clients, from small-scale farmers to budding entrepreneurs, are leading the charge in combating climate change at the grassroots level. Through collaborative efforts and community-driven projects, these individuals are finding innovative solutions to environmental challenges, often securing group loans. 

There are stories of shared irrigation systems and eco-friendly production methods. There are businesses related to recycling, organic farming practices and water conservation projects. The impact of this investment is already being felt, promoting resilience and adaptation in the face of climate change. 

Looking Ahead: Scaling Up Sustainable Finance

As investors, we have a crucial role to play in supporting climate-smart activities. The Incofin Climate Smart Microfinance Fund (ICMF) supports initiatives that promote climate resilience and adaptation, empowering communities to thrive in the face of environmental challenges.  This could involve:

Financial and Non-Financial Services  

  • General Financial Services: Tailored financial solutions for families impacted by climate change.  
  • Climate Data Collection, Monitoring, and Distribution Systems: Building community resilience through early warning systems and strategic relocation initiatives.  
  • Migration Financing/Remittances: Support for individuals relocating to new, climate-resilient locations.  
  • Emergency Loans and Post-Disaster Financing: Swift financial assistance for recovery after adverse events, complemented by a dedicated program for post-disaster funding.  


  • Climate-Resilient Agriculture Loans: Support for farmers with climate-resilient seeds, fertilizers, pesticides, smart irrigation systems, emergency shelter for livestock, soil rehabilitation, and training to enhance productivity while implementing sustainable agriculture practices.  
  • Crop or Index Insurance: Providing coverage for risks such as rainfall, drought, livestock, and yield fluctuations.  

Water & Sanitation  

  • Water Purification Loans: Funding for water purifiers, solar water pumps, rainwater harvesting, and wastewater relocation.  
  • Financing Water Businesses: Supporting companies engaged in portable distribution/kiosk setups, desalination, and other water-related ventures.  

Habitat & Livelihood  

  • Weatherproofing Home Loans: Financial support for weatherproofing homes against climate-related challenges.  
  • Roof Financing with Rainwater Collection: Assistance for the installation of roofs with built-in rainwater collection systems.  

Resilient Energy Systems & Transport  

  • Clean Energy Equipment Loans: Support for purchasing renewable energy equipment, including solar panels, clean cooking stoves, and micro-biomass power generators. Enhancing grid resilience.  
  • Leasing and Loans for Sustainable Transport: Facilitating income generation through electric vehicles, e-charging infrastructure, and batteries. 

By directing our investments towards these initiatives, we can contribute to building a more resilient and sustainable future for all. At Incofin, when we think about excellently managed female-led institutions, we start thinking about Bank Arvand. So, we are thrilled to see Bank Arvand as the recipient of the first investment from the Incofin Climate Smart Microfinance Fund (ICMF), and we look forward to many more impactful investments to come.  

  • The investment through the Water Access Acceleration Fund, a €70 million private equity fund.
  • Investment to improve safe drinking water access in Africa, Asia and Latin America. 
  • First fund investment by the Water Sector Fund, financed by the Netherlands and managed by the EIB.

The Water Sector Fund managed by EIB Global will provide €10 million in the Water Access Acceleration Fund (W2AF), managed by Incofin, a prominent global impact investment manager. W2AF is a “water-focused” blended finance impact fund targeting sustainable and scalable solutions that improve access to safe, affordable drinking water for underserved populations, mainly in Sub-Saharan Africa and South and Southeast Asia. The new initiative will provide 20 billion litres of safe drinking water by 2030.

The €10 million anchor investment by EIB Global will secure other investments, attract more private investors to W2AF. Through the fund, EIB Global will support innovative water businesses.

Among the first partners to benefit from this equity support will be Rite Water Solutions, a company in India providing drinking water solutions and improving water quality in rural and urban areas of the country. More than 540 000 households are expected to benefit.

This support to W2AF represents the first fund investment by the Water Sector Fund, a trust fund established in partnership with the Dutch government and managed by EIB Global. With its donor financial resources, the Water Sector Fund develops drinking water projects in low- and lower-middle income countries and promotes the UN Sustainable Development Goals.

EIB Vice-President Robert de Groot remarked, “This investment showcases our joint commitment to enhancing access to safe, affordable drinking water for all. Innovative financial and technical solutions are needed. The W2AF is an excellent example, funnelling water investments to the regions that need it most and helping build the private water ecosystem in emerging markets in Africa and Asia. I extend my gratitude to the Dutch government for their vital support, making this impactful endeavour possible.”

Incofin Chairman Loïc De Cannière stated, “We thank the EIB and the Dutch Water Sector Fund for joining W2AF, together with our diverse investors from Europe and the United States. W2AF is a pioneering, first-ever equity impact fund for the drinking water sector in the Global South. Incofin aspires to make the impact of this fund a success, and an example for other investors. By doing so, it will pave the way for more water funds, helping millions of people around the world access drinkable water, which is a key Sustainable Development Goal and a fundamental human right.”

Cees Bansema, Ambassador of the Kingdom of the Netherlands to Luxembourg, explained, “Access to safe drinking water is a human right and critical for social and economic development. This investment in W2AF shows how cooperation makes water projects more sustainable and inclusive. It is also a great example of how we can mobilise additional funding from other financiers or investors. It is a flagship operation of the Dutch-funded Water Sector Fund — combining the Netherlands’ continuous commitment to addressing global water challenges, the EIB’s extensive experience investing in water worldwide, and fund manager Incofin’s unique track record in impact investments.”

Background information

EIB Global is the EIB Group’s specialised arm devoted to increasing the impact of international partnerships and development finance outside the European Union. EIB Global is designed to foster strong, focused partnerships within Team Europe and as part of the EU Global Gateway strategy, alongside fellow development finance institutions and civil society. EIB Global brings the Group closer to local people, companies and institutions through our offices around the world.

The Water Sector Fund is an EIB-managed trust fund established in 2017 in partnership with the government of the Netherlands. It focuses on water sector projects in low- and lower-middle income countries, supporting universal access to water supply, sanitation and hygiene. The fund is open to contributions from other donors seeking to achieve UN Sustainable Development Goal 6: clean water and sanitation for all.

Incofin Investment Management is an impact investment fund management company for the Global South. It is headquartered in Belgium and has offices worldwide. It focuses on investments in financial inclusion, agri-food businesses, and safe water companies, with assets under management of €1.3 billion. Its investor base comprises development banks, institutional investors, family offices and private individuals.

Press contacts  

EIB: Olga Sushytska, o.sushytska@eib.org, +352 691 289 108

Website: www.eib.org/press — Press Office: +352 4379 21000 — press@eib.org

Incofin: Shonan Kothari, shonan.kothari@incofin.com, +32 489 25 08 11

Website: http://www.incofin.com/

• A study conducted by Invest in Visions confirms Microfinance resiliency to economic cycles and market disruptions.

• Increased diversification potential and improved risk-return ratio with microfinance.

Microfinance funds are assumed to being suitable for diversifying a portfolio because of the non-correlation to traditional asset classes and thus the asset class reduces the overall portfolio risk. In collaboration with the Technical University of Cologne (Technische Hochschule Köln), Invest in Visions has analysed the diversification effects of the microfinance asset class over an 18-year period.

The result: microfinance has the potential to improve the risk-return ratio of a classic mixed asset portfolio, but contemporary trends are emerging with regards to the direction and strength of the correlation and investors need to differentiate the proportion of microfinance in the portfolio more diligently, especially in times of (financial) crisis.

An asset class in turbulent times

As an impact investing product, microfinance claims to achieve social impact next to financial performance. In a recently published white paper “diversification effects of microfinance investment”, the authors analyse the scientific debate of the poverty-reducing effect of microloans and the historical diversification effects. Most macroeconomic studies published in the past have already shown a clear link between the spread of microfinance and a reduction in poverty and income inequality.

The results of the analyses on diversification effects and portfolio optimisation are far more exciting: the correlation analyses of all indices were examined over the course of 18 years and over three 6-year periods. Older studies were regularly limited in their information value due to shorter time periods or a small number of microfinance funds analysed.

The results reveal some surprising findings: negative correlations became weaker and positive correlations stronger with each period. The Symbiotics Microfinance Index (SMX) as benchmark for the asset class was compared with bond, equity, money, and crypto markets. In addition, a distinction was made between traditional and sustainability-oriented indices (naturally, the observation period for crypto index and all sustainability-oriented investments was shorter than 18 years).

Noticeable is a positive correlation in fixed income while the traditional equity markets show no statistically significant correlation. The correlation between microfinance and bond markets becomes increasingly stronger over time. Equally striking is the development of the correlation coefficient. For example, the coefficient of the MSCI Emerging Market Index was -.345 in the first six-year period, -.189 in the second period and then a remarkable +.127 in the third six-year period. This shows by way of example that the diversification potential of microfinance can also fluctuate considerably.

Edda Schröder, Founder and Managing Director of Invest in Visions, explains: “The asset class microfinance can generally be suitable for portfolio diversification, as this asset class tends to be resilient to economic cycles and market disruptions. However, you should also diversify and invest globally.”

The analysis also examined correlation behaviour in times of crisis when diversification potential is most important. The behaviour was analysed during a) the monetary crisis of 2010, b) during the pandemic, c) the start of the Russia-Ukraine conflict and d) in crisis year 2015. Even during the peak phases of each respective crisis, microfinance yields did not rise above the +/- 1% mark. This illustrates how low the volatility of the microfinance sector is, particularly in volatile capital markets. However, the number of significantly strongly positively correlated indices doubled during the coronavirus crisis year 2020 compared to the same period in the previous year. According to the study, if such shifts towards positive correlation were to occur, particularly during crises, this would significantly reduce the risk reduction effect. The constant returns of microfinance would then no longer serve as a counterbalance to the falling prices of the other markets to the same extent.

Microfinance in the portfolio reduces overall risk.

Finally, to assess the diversification potential, portfolios with different target values were constructed and compared for traditional, sustainability-orientated microfinance investments.

The empirical analyses show that in an equally weighted portfolio of different asset classes, the standard deviation of returns decreases as the microfinance share increases. This is due to the low correlation of the SMX with the other indices, which fluctuates significantly less around its mean value than the benchmark indices over the entire observation period (shortened period for sustainable and crypto indices). Microfinance can therefore reduce the overall risk regardless of the weighting. At the same time, greater diversification benefits can be achieved than with comparable equity and bond indices from the sustainability sector.

The study makes it clear that microfinance still has the potential to diversify a portfolio of traditional asset classes and significantly reduce risk. At the same time, however, sustainability-oriented investors must also expect a drop in returns if they integrate microfinance into their portfolio.

“For risk-averse investors in particular, microfinance is therefore an attractive investment that can increase the efficiency of the portfolio, even apart from the social return,” says Schröder.
The full study can be downloaded here: https://www.investinvisions.com/en/blog/press-releases/diversification-effects-of-microfinance-investments/

Incofin Foundation, with financial support from IDB Lab, has launched an Innovation Call ‘Advancing Digital Innovation for Smallholder Farmers in Latin America’. The Innovation Call is hosted by GSMA, the technical partner for this initiative. Entities offering solutions that utilize agricultural technologies and digital tools (agritech) to meet the needs and potential of smallholder farmers are encouraged to apply.

The Innovation Call will identify eight early-stage entities (‘Group 1’) and six growing/mature entities (‘Group 2’) that champion innovative, impactful, and financially sustainable agritech solutions capable of helping smallholder farmers improve profitability and/or climate resilience. Projects that also include strategies to expand gender inclusivity in the use of agritech will be viewed particularly favourably. Eligible applicants include agritech organizations or start-ups, financial service providers, producer organizations, and agribusinesses operating in or planning to expand to Bolivia, Colombia, El Salvador, Honduras, Paraguay, and Peru.

Selected entities will receive grants to finance Technical Assistance (TA) projects: up to USD 50,000 for Group 1 to develop and test new solutions, and up to USD 85,000 for Group 2 to roll out and scale existing agritech services. Applicants able to demonstrate partnerships with Israeli agritech companies may receive additional grant funding of up to USD 28,500. In addition, Group 1 entities will be connected to potential investors with experience and appetite for early-stage investments, while Group 2 might receive a follow-up investment from the funds managed by Incofin IM or other investors.

More information about this exciting opportunity, including eligibility and selection criteria, can be found here. If you are interested in applying, please review the Term Sheet and submit your application through the online application form available here.

Applications will be accepted until 11:59 PM (Colombia time) on April 12, 2024. Any questions related to this Innovation Call can be directed to innovationcall@incofinfoundation.com

Incofin, a global impact investor, continues to fuel the remarkable journey of Banco FIE with an infusion by Invest in Visions for USD 10 million. This substantial commitment marks another chapter in a partnership, focused on financial inclusion in Bolivia, that spans over 15 years.  

Incofin and Invest in Visions confirm its commitment with new financing to Banco FIE for USD 10 million. It is not the first investment in Banco FIE of the impact investor. The partnership between the Belgian impact investor and the Bolivian microfinance bank goes back more than 15 years.  

In 2022 Banco FIE won the European Microfinance Award on Financial Inclusion that Works for Women. The microfinance institution impressed the jury because of the way it incorporated a gender-related dimension into its products and services, making them more accessible to women. Banco FIE provides a wide range of products, including micro-insurance, digital financial literacy and technical support to enhance agricultural productivity among women. 

The bank succeeds in bringing Bolivia’s vulnerable into the financial system, supporting the economic ventures of hundreds of thousands of Bolivians who otherwise would have been left out in the cold. Banco FIE swears by inclusion, quality and transparency. No financial return without social return has remained the guiding principle. The bank, for example empowers its clients to modernize their businesses: Banco FIE offers a simple procedure whereby entrepreneurs can very easily set up a web page with a payment button to sell their products online. 

Banco FIE is currently the largest microfinance bank in Bolivia with more than 1 million customers. Incofin’s investment reaffirms its commitment to drive inclusive progress, empowering Banco FIE to continue its journey of financial inclusion, social transformation and economic empowerment in Bolivia.  

@Ximena Behoteguy, @Fernando López Arana @Cecilia Delgado  

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