These days, microfinance serves as an umbrella term for financial services such as loans, savings accounts and insurance products for people who are not served by commercial banks because they lack collateral to secure loans, have no regular income and live far from urban centres. Microfinance received considerable attention in 2006 when Muhammad Yunus, founder of the Grameen Bank, was awarded the Nobel Peace Prize for his microcredit concept. The basic idea:
- Help people to help themselves
- Access to financial services for all
- Promote independence, especially among women
- Develop national financial systems
Retail investors have only been able to start getting involved in this concept in recent years, thanks to the creation of microfinance funds. Invest in Visions is among the trailblazers of microfinance investments in Germany. With our IIV Mikrofinanzfonds, launched in 2011, we pioneered the concept of microfinance funds available to retail investors in Germany.
How the IIV Mikrofinanzfonds works
The IIV Mikrofinanzfonds uses investors’ paid-in capital to provide unsecured loans to selected microfinance institutions (MFIs) in developing countries. All partner institutions are selected on the basis of strict financial and social criteria, primarily from the group of established non-banking financial institutions (NBFIs), non-governmental organisations (NGOs) and cooperative banks. The average size of the loans is about EUR 3,1 million; the average tenure is 19 months (as of October 2017).
The institutions use this financing to provide loans to microentrepreneurs and small and medium-sized companies. Typical borrowers include vegetable sellers, dressmakers, cattle farmers and craftspeople who use these loans to buy seed, tools or materials, or to bridge financial bottlenecks, for example due to droughts. The microloans are redeemed after an average of 9–12 months. The microfinance institutions pay back the loans including interest payments to IIV Mikrofinanzfonds and investors receive a moderately rising return from the fund.