Small Money - Big Impact
How does the IIV Mikrofinanzfonds (Microfinance Fund) work?
First, the capital of the IIV Mikrofinanzfonds is provided to selected microfinance institutions (MFIs) all over the world as non-securitized loans. The MFIs are selected according to strict financial and social criteria. The MFIs belong mainly to the group of established non-banking financial institutions (NBFIs), non-governmental organizations (NGOs) and cooperative banks. The average loan size is around 5.4 million EUR with an average remaining maturity of 19.9 months (as of December 2022).
Second, the MFIs use the borrowed capital to provide loans to small business owners or small and medium-sized businesses. Typical microcredit borrows are e.g. vegetable traders, tailors, cattle breeders and craftsmen. On the one hand, this provides them with the money for seeds, tools, working materials and other raw materials. On the other hand, they receive the opportunity to overcome financial bottlenecks caused by crisis such as periods of drought, after floods and other natural influences.
The microloans are repaid after an average of 9-12 months. Finally, the MFIs repay the loans, including interest payments, to the IIV Mikrofinanzfonds and the investors receive a moderate steady return through the Fund.
Basic information about the IIV Mikrofinanzfonds:
- First Microfinance fund of its kind in Germany (launched 2011)
- Clear Microfinance-Exposure, no FX-Risk, no Equity
- Fund size (as of 31.12.2022): 928.74 Mio. EUR
- Number of microcredit borrowers (as of 30.09.2022): 648.350
- Number of countries (as of 31.12.2022): 32
- Number of Microfinance instituts (as of 31.12.2022): 95
- Diversification of Portfolio (as of 30.09.2022): 38 % services, 20 % agriculture, 12 % production und 30 % other
- Default rate: under 2%
|Share Class||ISIN||Total Expense Ratio|
|R||DE000A1H44T1||1,98 % p. a.|
1,49 % p. a.
Further details about our investment strategy, Performance and other important data please find in the monthly report below.
Impact measurement of the IIV Mikrofinanzfonds
As part of our investment decision-making process, we include the intended impact of the investment and subsequently manage it. This fulfils our commitment as a signatory of the Operating Principles for Impact Management. Our statement on the OPIM can be found here. After the investment decision, we measure the social outreach of the portfolio and present it in various publications. These include in particular the monthly factsheets and the annual Impact Report.
In our Impact Report 2021, we report in detail on the impact we have achieved in microfinance with the funds entrusted to us in the past year. In addition, we present the strategy we as a company have used to counter the Corona pandemic and how Invest in Visions GmbH has developed both financially and in terms of personnel.
The core indicators for measuring the impact of the IIV Mikrofinanzfonds are currently the following:
- Number of countries and corresponding per capita income
- Number of end borrowers reached
- Average loan amount per end borrower
- Type of activities supported by sector
- Gender distribution of end borrowers
- Rural/urban distribution of loans
- Type of lending by group loans and individual loans
The core indicators are calculated quarterly. At these intervals, we receive the indicators from the microfinance institutions (MFIs) we refinance. All the indicators listed above, with the exception of the number of countries and the corresponding per capita income, are weighted according to the share of the respective MFI in the total IIV portfolio as well as the IIV loan in the gross loan portfolio of the respective MFI. This is a realistic approach for estimating our social outreach. Based on these indicators, we can make a statement on our contribution to the achievement of the goals of the IIV Mikrofinanzfonds we have defined.
Read more about our contribution to the SDGs here.
Further sustainability information
The sustainability profile for the IIV Mikrofinanzfonds of the Forum Nachhaltige Geldanlagen can be found here (only available in German).
In addition, we have made a declaration as a signatory to the European SRI Transparency Code (only available in German).
Our statement on the Operating Principles for Impact Management (OPIM) can be found here.
Maximum effect with microlending
Frequently Asked Questions
What does the term microfinance mean?
Nowadays, microfinance is used as a generic term to cover the various financial services – such as loans, savings accounts and insurance policies - that are provided to people who have no access to the financial services sector because they cannot offer any financial security, often have no regular income and live some distance from urban and financial areas. Microfinance gained a great deal of attention in the year 2006 when Muhammad Yunus, founder of the Grameen Bank, was awarded the Nobel Peace Prize for his concept of microcredit as a way of 'helping people to help themselves'. It has only become possible in more recent years for private investors to participate in this concept through microfinance funds. Funds such as the IIV Mikrofinanzfonds grant loans to small and medium-sized microfinance institutions in emerging and developing countries. These institutions provide support to micro and small entrepreneurs and offer them a genuine way to help themselves by giving them access to financial services.
What is a microfinance institution?
A microfinance institution (MFI) provides basic financial services such as loans, savings accounts and insurance policies to people who cannot offer any financial security and are therefore unable to access the services of commercial banks. Socially-oriented microfinancing is an important tool in development policy and can be used to help low-income households to escape the cycle of poverty through their own efforts. These microfinance institutions may have various structures: non-governmental organisations (NGOs), cooperatives, private banks, non-bank financial institutions and other organisations that are committed to offering a branch of microfinancing. They vary widely in terms of their profitability and their level of commercialisation.
What are reasonable rates of interest?
Rates of interest in emerging and developing countries cannot be compared to those in industrialised nations because microfinance is a very small-scale and therefore cost-intensive business. In contrast to commercial banks, the customer advisors actually travel into the rural districts to offer their customers one-to-one advice in their own local area. Added to this, many countries have inflation rates well into double figures and considerably higher market interest rates. Accordingly, annual interest rates of 18-30 percent may be within reasonable bounds, depending on the region or country in question. Many small entrepreneurs in emerging and developing countries generate a high percentage of returns, even with just a small investment of capital. This means that they are often in a position to be able to pay off their loans within 6-9 months.
How high are the repayment rates?
The microfinance institutions that we have selected not only make capital available to borrowers, but also give them support, for example through training measures. The high repayment rates – on average, 98 percent – make it very clear that most of the end borrowers succeed in fulfilling their potential as entrepreneurs. If used in the right way, microfinancing can reduce poverty and help people to improve their standard of living through their own efforts.
What could be the explanation for the high repayment rates?
The discipline of borrowers when it comes to the repayment of microfinance services is impressive: the microcredit loan is always coupled to a business idea and is paid back in 98% of cases. This clearly demonstrates the level of seriousness of the clients in putting their ideas into practice.
There is a diverse range of reasons for the high repayment rates. One reason is the awarding of group loans. If an individual borrower is not in a position to be able to meet their loan payments, the other members of the group will cover for them. This shared responsibility results in increased efforts on the part of clients to pay back their loans – it is very much in the interest of the members to see that the various business models succeed, so they offer one another support.
Another reason is the business training that is often offered when loans are granted – in some cases this is mandatory. Clients learn how to set up and run a profitable small business. From the profits earned, they are then able to pay back the interest.
A further reason is often cited is the granting of loans to women. Women seem to be more reliable borrowers. They have a greater sense of responsibility towards their family and therefore take greater care in ensuring that the business succeeds. They want to make good use of the opportunity that has been offered to them and they pay back the instalments regularly.
How do the recipients of microcredit loans manage to pay back their loans despite the high interest rates?
With successful implementation, initial investments in business activities can bring about substantial increases in profits. For a dressmaker, the investment in her first sewing machine results in an unbelievable increase in productivity and therefore in profits, with an increase of 20 percent or more being quite common. With the help of the investment made with the microcredit loan, microentrepreneurs can expand within their area of business and their profits rise accordingly. It is therefore relatively easy for the recipients of microcredit to pay the higher rates of interest on their loans. The amount of interest can be explained by the rate of inflation, which is often high, and the high level of outgoings in operative terms, as well as by the higher level of risk (see question: What are reasonable rates of interest?).
What are group loans?
Group loans are a special kind of loan that is granted to clients in emerging and developing countries. In this case, a number of people who all want to get a loan come together to form a group. Within the group, the members act as guarantors for one another and support one another with the successful implementation of their business ideas and with the punctual repayment of the loan. The group can decide for themselves who they will accept as a member. Trust plays an important role in their success.
Group loans are often cited as the reason why the repayment rate for loans is so high. If one of the clients is not able to make their loan repayment, then the other members of the group act as guarantors for them. This means that there is pressure within the group, resulting in increased efforts to pay back the loan. In addition to this, as they have a shared interest in the successful implementation of their business ideas, the members of the group are motivated to provide one another with mutual support. This strengthens the feeling of community spirit and trust-based collaboration within local communities. The members of the group often gain their first experience of solidarity outside of their own family when they participate in a group loan.
Furthermore, belonging to a group gives the members a feeling of confidence and security outside of their own family. For women in particular, this may be the first time that they gain recognition and take on a position of leadership. But group loans don't make sense in every situation. Their use varies according to the region and situation in question.
Who are the typical clients of the microfinance institutions?
The clients are primarily people on a low income in emerging and developing countries who want to improve their standard of living through some kind of business activity. As they often live in rural areas, have no regular income and cannot offer any security, they are not attractive customers for the commercial banks and are therefore unable to make use of their services. The clients are primarily people on a low income in the emerging and developing countries who want to improve their standard of living through some kind of business activity. As they often live in rural areas, have no regular income and cannot offer any security, they are not attractive customers for the commercial banks and are therefore unable to make use of their services.
The clients make use of various financial services offered by the local microfinance institutions, although microcredit loans are the most popular service used. This means that most of the clients of microfinancing are people who have a good business idea which they want to use to get themselves out of the cycle of poverty. These entrepreneurs operate for the most part in the informal sector, e.g. in retail or in the manufacture of simple products. They are self-employed and have no more than five employees. In many cases, they are a one-man/one-woman business. Potential clients of microfinancing often lack the necessary educational background. For this reason, the granting of financial services is frequently coupled to accompanying business training for the client. Here they are taught some simple rules to help them to run their company effectively, thereby increasing the chances that their business will be a success. Clients must show evidence of having a viable and promising business idea before they can be issued with a loan.
Worldwide, the number of female clients of microfinance services is higher than the number of male clients. A possible key reason for this is the fact that women are generally more punctual in paying back their loans, as has been shown by the experience of the microfinance institutions. Furthermore, on average, they have an even shorter school education, as well as less security in material terms, and therefore find it even more difficult than men to access banking services.
Do microfinance institutions have access to traditional capital markets?
There are various different types of microfinance institution (MFI) and the term covers a large sector with a range of different organisational structures. For this reason, it is not possible to make general statements that will apply to all MFIs. Many MFIs in emerging and developing countries have no access to the traditional capital markets. They are dependent on investment from other countries and on funding obtained through development policy. The more an MFI becomes commercialised and profitable, however, the higher are its chances of being able to procure the required funds in the capital market. The majority of the MFIs which Invest in Visions works with are dependent on your investments in order to be able to continue pursuing their valuable work in the respective emerging and developing countries.
What is the typical procedure for a microfinance investment?
The IIV Mikrofinanzfonds passes on the capital that has been invested into the fund by investors to selected microfinance institutions (MFIs) in emerging and developing countries. The MFIs are selected after careful review of a range of factors, for example business philosophy, methodology, social and environmental sustainability, and also profitability. Invest in Visions then builds up an intensive, trust-based partnership with these institutions and grants loans to them. The MFIs lend the capital to people with viable business ideas who are excluded from the traditional financial markets. These micro and small entrepreneurs are given intensive guidance and support throughout the whole process. They pay interest at frequent intervals and pay back the loan to the MFI after an agreed period of time. It is often the case that a close relationship is built up between the MFI and the client, and a further loan may be issued for the expansion of the business.
The interest earned on the loans granted is usually paid to the fund once every six months by the microfinance institutions. After a period of time that is agreed in advance, the microfinance institutions pay back the loans issued to the fund, who then distribute the returns. The loans that have been paid back are then once again made available from the fund assets to other microfinance institutions.
How effective is microfinancing?
Worldwide, microfinancing is considered to be one of the most important tools for financing development and is heavily promoted by many donor countries. Its effectiveness overall is difficult to measure, as microfinance has an impact on many different areas of life and brings about countless synergistic effects. Nevertheless, the positive effects of microfinancing have been demonstrated in various different studies across the world: living conditions are improved and the cycle of poverty is broken. Financial independence allows many families to give their children a better education, thereby establishing the foundations for a better future. For many people, microfinancing is the only way that they can escape from poverty and set up a small business of their own. However, it is important to remember that this measure alone will not reduce the level of poverty in the world. Other development tools are also needed in order to change the accompanying conditions and also to help those people who are not reached by microfinancing.