Invest in Visions and Incofin Investment Management look back on 1 Billion euro deployed for micro-enterprise financing, and more to come.
The partnership of Invest in Visions and Incofin Investment Management, which goes back to the beginning of 2015, has passed a milestone: the collaboration between Germany’s top microfinance asset owner and Belgium’s specialist financial inclusion investor has led to more than 1 billion euro of disbursements through over 300 transactions with financial institutions in 38 emerging markets.
Edda Schröder, the Managing Partner of Invest in Visions (IIV), and Geert Peetermans, Managing Partner of Incofin, report that – globally – approximately 87 million micro-entrepreneurs are clients of the financial institutions supported by their efforts, and 47 million women borrowed small amounts from them. At least 16 million clients are estimated to come from rural areas. The financial institutions provide for 233,000 direct employment of which 44% is female staff.
While the microfinance fund of Invest of Visions started in 2011, the formal beginning of the partnership of Incofin and IIV brings us back to 2015. Can you explain us how the idea for partnering started floating?
Edda Schröder: Well, in 2015 IIV took over the portfolio management of the IIV Mikrofinanzfonds. At that time, we had a small team without presence in the emerging markets. Therefore, we started looking for a partner who could do sourcing and due diligence of microfinance institutions on the ground. I had been aware of Incofin as a specialist in microfinance for a while. Before launching the fund, I had to do a lot of advocacy work to convince German regulators to introduce public microfinance funds for private clients. To that end, I worked closely together with some sector associations and that is how I met Loïc De Cannière, the CEO of Incofin at that time.
Incofin was already considered a specialized asset manager and advisor for microfinance. The microfinance sector associates Incofin with high-quality work, so it was a natural choice. We were all very thrilled when Incofin decided to accept our offer.
Also for Incofin it was a new setup. So, I can imagine that in the beginning things were not always that easy.
Geert Peetermans: This partnership was indeed unexplored territory to us. Previously we had set up a few own initiatives such as RIF I and II for example. But teaming up with IIV brought some interesting benefits to the table. Although this was new to us, we realized a collaboration like this would make a lot of sense because of growth perspectives. IIV had launched the first public microfinance fund in Germany, which we saw as a market with a lot of potential. So, we were both pioneers in a sense.
Edda Schröder: It was a bit of an adventure. The fund was launched in 2011, it took until 2015 to collect 80 million euro. It is important to remember that this was a new asset class, people didn’t know about microfinance and were not easily convinced to invest in the fund. Giving loans to MFIs in Kyrgyzstan for instance, a country that is far away, sounded too exotic. Therefore, it was hard work to gain people’s trust that we would get back the money. The operational side was also challenging at the beginning, including all parties that were involved, such as finding efficient fund services. Now we have everything in place.
How did the partnership manage Covid-19?
Edda Schröder: The risk team of Incofin proved its tremendous added value. Incofin’s risk managers responded quickly, they were really hands-on. All the necessary information was provided to us quickly. It showed us the great advantage of having Incofin on the ground in the emerging markets. The teams in Colombia and Cambodia, for example, knew immediately what was going on. In the midst of uncertain global developments, it is really helpful and reassuring to have a trustful partnership, like the one we have with Incofin.
We also made a joint decision to be cautious about new loans. I must say, that IIV experiences fewer problems with the consequences of Covid-19 than I initially expected. One reason is because we have become part of a collaboration of microfinance investors working together to support the liquidity of the entire sector.
Which other changes or developments do you see happening?
Geert Peetermans: The scope of the theory of change has evolved: today the object of financial inclusion is no longer only about income generation, but also about education, affordable housing, etc. This opens up the impact spectrum towards different SDGs.
Edda Schröder: I fully agree. We are also looking at SME financing. As a German microfinance fund, we are quite strictly regulated: we are only allowed to invest in microfinance. That means microfinance institutions that pay out microcredits of a maximum of EUR 10,000. But what about the missing middle? It also needs more capital; there is a shortfall of USD 4.5 billion for one million SMEs in emerging markets.
Geert Peetermans: Together we have been working, within the regulatory framework of course, to find possibilities to include also what goes beyond traditional microfinance: microleasing, affordable housing, or for example a partner institution like Bayport in Colombia which recently was added to the portfolio. Bayport services mainly people working in the public sector who have a business on the side. So, they reach people who are not the typical microfinance clients.
Edda Schröder: Another challenge is the hype around sustainable finance in Europe: the EU taxonomy, which entails many additional documentation requirements for an impact investor. Our investors are also asking for more impact data. You have to prove that you really are an impact investor, and that it is not just green washing. At the same time, it could be a great opportunity for us to set up even more new products to attract more investors and help the microfinance sector grow.
It is an opportunity to tell what microfinance is all about. For my experience it is that the majority in Germany, even in the financial sector, still doesn’t really know what microfinance means. So, there is still a huge potential. And it needs transparency and more education.
When we are talking about the future of the microfinance sector, sooner or later the term digitalization falls.
Geert Peetermans: With good reason. We see different kinds of players coming up, like for example fintechs. And in countries like Colombia and Kazakhstan, we see new promising developments in this field. These are often still young and small in size, therefore we have to assess carefully when they will become investment ready. Nonetheless they represent definitely a new channel to keep in sight as it is expanding at high pace. Microfinance clients look and will increasingly look in their direction to find an answer for their credit needs.
Clearly, still a lot is to accomplish, and maybe best together? How do you see the partnership between IIV and Incofin evolving?
Edda Schröder: I hope we can build on our cooperation and partnership in the future and can grow jointly. One of the challenges we see in the future and where we can use the support of our partner is the higher degree of regulation coming from Europe: we will need more data, for example. Thus, we are striving for a long-term relationship.
Geert Peetermans: I can fully echo that.