AIF stands for Alternative Investment Funds. An AIF is an investment fund in accordance with the German Capital Investment Code (Kapitalanlagegesetzbuch), which is not a UCITS (Undertaking for Collective Investment in Transferable Securities), because it does not invest exclusively in daily tradeable securities. AIFs may be open-ended and closed-ended real estate funds, special funds or microfinance funds, as in our case. Private investors may invest in public AIF, such as the IIV Mikrofinanzfonds.
AuM stands for “Assets under Management”, meaning the assets being managed, i.e. the available investment capital.
Due diligence, also known as a due diligence review, is a concept that comes from American business law and private law. It relates to applying “due care” in the context of a risk analysis. Buyers go through a due diligence process before the acquisition of real estate or companies, before investing in company shares or before initial public offerings on a stock exchange. This review serves the decision-making process as well as to determine the value of the asset to be purchased by weighing up the risks and analysing strengths and weaknesses.
Exclusion or negative criteria are, in the context of a sustainable investment policy, the criteria that prohibit investments in certain industries, sectors or business activities. One example is the fossil energy production sector.
ESG stands for Environmental, Social, and Governance, which make up the catalogue of criteria for evaluating the business practices of a company based on the conviction that businesses with better ethical standards are also more profitable in the long-run. Environmental criteria assess the performance of a business with a view to the natural environment. Social criteria assess the impact of a business on society and on the relationships of the business with its employees, suppliers, customers and the communities in which it operates. Governance relates to the remuneration of company leaders and human resources in general, compliance and audits as well as internal controls and shareholder rights.
ESG investing differs from impact investing in that ethical business practices are viewed as a way to preserve value, increase value, or to achieve return on investment – rather than as important priorities in and of themselves that impact investing seeks to promote.
The Gini coefficient or Gini index is a statistical measure of the unequal distributions in a group, developed by the Italian statistician Corrado Gini. Inequality distribution coefficients can be calculated for any distribution. For example, in economics, but also in geography, the Gini coefficient is considered a measure of the income and wealth distribution of individual countries and thus a tool for classifying countries and their associated level of development.
“Greenwashing” is the term used when a marketing campaign focuses on a product with a so-called “green image”. This product is touted for being sustainable and contributing something positive to the environment, for example. However, there is no (scientific) evidence that this is really the case.
A special way of issuing micro loans in the field of microfinance. Several people form a group and receive a joint loan. The members act as guarantors for one another and support one another in the implementation of their business ideas. The group also makes joint decisions as to who will be accepted as a member. Trust therefore plays an important role with this type of loan. The social pressure that the group exerts on each individual member often makes a key contribution to the high repayment rates. This type of lending is predominantly applied in India.
Impact investments are about applying money and investment capital for positive results, which means that investors are offered a double return. As an investment strategy impact investing thus aims at achieving a specific positive social or environmental impact in addition to financial returns. Impact investments may take the form of countless different investment classes and may lead to many different results.
Impactwashing can be defined as any marketing claim that a product will cause a change in the real economy that cannot be supported by evidence. For example, a fund manager may claim that a particular investment will allow you to reduce carbon dioxide emissions by x thousand tons, or that this is equivalent to taking x thousand gasoline-powered cars off the road, but the manager should have to prove that these cars have been taken off the road at the same rate – otherwise, this constitutes impactwashing.
Inclusive growth means a type of economic growth that is based on fairness and provides poorer sections of the population with opportunities to improve their situation. In general it is intended to reduce the income gap and, as a result, the gap between rich and poor.
Businesses in the informal sector are usually not registered and therefore not subject to taxes. The informal sector is often the result of the bureaucratization of developing and emerging countries. There are few barriers to entry and the sector is often characterized by self-employment, low and at the same time labor-intensive production, the use of local resources, and the lack of access to organized markets and to traditional forms of credit.
Investment criteria are characteristics that form the basis for judging in which areas a fund may invest. For example, in the sustainable area, these are ESG criteria that allow a selection from an environmental, social or governance perspective and base their investment on this.
The loan guarantee, also known as security interest, is intended to protect the beneficiary of the guarantee (the lender) from the financial consequences of the risk in the event that a borrower fails to fulfil their obligations in a debtor-creditor relationship or fails to fulfil them within the agreed time. The security interest offered may take the form of savings or material resources as collateral, for example. In most cases, a lack of collateral prevents microentrepreneurs in emerging and developing countries from obtaining loans from traditional large banks.
An important aspect of microfinance is the so-called microloan or microcredit, which is granted to a small or microenterprise by a microfinance institution. This is the most common form within microfinance. It is often a small amount of money, which however depends on the institution, country and activity.
The umbrella term “microfinance” stands for the provision of banking and financial services to low-income and poor clients without financial collateral. The currently predominant service is the provision of microloans. In addition, there are offers for bank and savings accounts, payment transactions and insurance, among others.
This is a very small business that exists almost exclusively in the informal sector. Microenterprises have fewer than ten employees and are usually the only source of total family income. They can serve as a stepping stone to building larger, more secure and stable businesses. Examples include small kiosks, carpentry shops and sewing workshops.
MFI stands for microfinance institute. These are financial institutions that offer primarily microfinance services. Their goal is to reach low-income households with a growing bandwidth of financial services and to finance small and micro enterprises. The concept includes banks, but also other regulated financial institutions, such as regulated Non-Banking Financial Institutions (NBFI), savings and loans cooperatives as well as non-profit organizations. MFI can be classified into different levels based on their entrepreneurial maturity and size.
In many emerging and developing countries, small and medium-sized enterprises (SMEs) are not able to secure their own financing. Often, the national capital market lacks the financial structure to finance the necessary investments. There are often only few institutions whose services are tailored to the needs of SMEs. The financial requirements of the SMEs is too great for microfinance institutions (MFIs), yet they are too small for traditional banks. And then again, they often lack the potential for growth, returns and resale for them to be of interest to venture capitalists. This results in an enormous gap in terms of financing (the so-called Missing Middle) for the segment between the larger medium-sized companies and that of the small and micro entrepreneurs.
NAV stands for “Net Asset Value”. The NAV refers to the net worth of a firm and is calculated as the difference between the total assets and total liabilities of the firm. NAV is usually referenced in the context of mutual funds and Exchange Traded Funds (ETF) and is expressed on a per-share basis. It is the price at which the units of the fund, registered with the Securities and Exchange Commission (SEC), are traded.
A Non-Banking Financial Institution (NBFI) is a financial institution that does not hold a full or traditional banking license or is not supervised by a banking regulator. NBFIs provide bank-like financial services such as investments, loans and risk pooling. Examples include insurance companies, pawnbrokers, microcredit organizations and currency exchange offices.
So far, no uniform definition exists. Generally, non-governmental organizations (NGOs) include all organizations that are not legitimized by a public mandate. Many NGOs are founded by private initiatives and are not dependent on state influence. Many microfinance institutions start as NGOs before their commercialization. Access to funds is often limited for NGOs and thus private investment is extremely important.
The Organisation for Economic Co-operation and Development (OECD) consists of 38 member states around the world. Most OECD members are countries with higher per capita income and are considered developed countries. The main task of the organization is to promote fair and improved regulations and thus improve trade etc. between countries.
Portfolio at Risk (PAR) is the percentage of the total loan portfolio that is at risk. PAR 30 is therefore the principal amount (net of repayments) of outstanding loans that are 30 days past due or of outstanding loans that have not been repaid for 30 days. This is divided by the total principal amount of all outstanding loans. PAR values are often used in accounting to show the health of the overall loan portfolio. The lower the value, the better the portfolio.
Screening is the action within a sustainable investment approach to filter out suitable investments with the help of certain set exclusion criteria and to determine whether they are really traded sustainably.
The 17 Sustainable Development Goals (SDGs) are political targets set by the United Nations (UN) to ensure sustainable development at the economic, social and environmental levels. They are intended to encourage people to think about and improve their future.
Criteria for selecting companies, i.e. there are certain requirements of the investment policy in ecological, social and ethical terms that must be met in order to be allowed to make an investment.
Microfinance is aimed at small and micro entrepreneurs, i.e. mostly individuals who have set up their own business with their business idea or want to do so. Microenterprises are defined as companies with up to ten employees. Due to their lack of collateral, small and micro entrepreneurs have very limited access to the traditional financial market and are therefore dependent on offerings at the microfinance-level. The logical development of microfinance is the financing of small and medium-sized enterprises (see SME financing).
Financing of small and medium-sized enterprises. In our case, we focus on the financing of small and medium-sized enterprises in developing and emerging countries. These companies often lack access to the capital market because the financing needs are too large for microfinance institutions and too small for traditional commercial banks.
SME stands for Small and Medium-sized Enterprises. See also glossary entry under “SME financing”.
Social indicators are measuring tools used to determine the quality of life, overall condition and development processes of a society and to compare them with other societies. More specifically, they are indicators for measuring the quality of life, as opposed to the purely economic measurement of living standards by gross national income. Examples include life expectancy, infant mortality, illiteracy rate, poverty rate, home ownership rate, etc. In a broader sense, there are also other measures used to describe the social structure, social change and other issues considered important in sociopolitical terms.
Socially Responsible Investment (SRI), also known as social investment, refers to investments that are considered to be socially responsible on account of the type of business activity carried out by the company that is being invested in. Socially responsible investments can be made by investing in individual companies that have a positive social performance, in social bonds or via socially responsible investment funds. Usually, in the context of SRI fixed exclusion criteria which exclude certain companies, business activities or sectors are used. In accordance with this, this approach does not per se actively seek to achieve a social impact, but rather focuses on ensuring that certain ethical standards are complied with, and is therefore to be distinguished from impact investing.
“Sustainable investing” is the general term for investments that are sustainable, ethical and responsible, as well as social and environmental, but still keep the traditional points of risk and return in mind.
TER is the abbreviation of “Total Expense Ratio”, an important key figure for investment funds. It is intended to make transparent how high the fixed costs of a fund are – i.e. the costs that are incurred each year. The costs that flow together in the TER relate to the sum of the money invested. That is why it is expressed as a percentage.
The traditional capital markets or financial markets bring together providers of capital with those needing capital. The economic importance of the financial markets above all also stems from the fact that investors make available long-term finance, both equity capital and debt capital. In return for this, the investors receive a return. The traditional capital markets in emerging and developing countries comprise the sources of funds that were available before the beginning of microfinance, for example the large banks. These markets are not available to all market participants, often because there is a lack of incentive for the investors.