According to the most recent data from the World Bank, more than 696 million people worldwide live below the international poverty line (set at $ 1.90 / day). About 10% of the world's population live in conditions of extreme poverty and struggle to meet basic needs such as health, education, access to clean water and a sanitation system. On top of that, poverty hits children and women even harder (122 women aged 25 to 34 live in poverty for every 100 men of the same age group). The situation has been exacerbated by the Covid-19 pandemic since people in informal employment were hit the hardest by the lockdown measures taken across the globe, adding an estimated 97 million poor worldwide, which is an unprecedented increase in poverty.
Geneva has been a pioneer of microfinance since the early 2000s.
The financial sector has a very important role to play when it comes to poverty alleviation. Indeed, the financial sector can and has increased the financial inclusion of individuals, by providing access to secure payment and remittance facilities, savings, credit and insurance. This is what microfinance is all about; providing access to financial services to those who are left out of the mainstream financial system. Geneva has been a pioneer of microfinance since the early 2000s, thanks to collaboration between international organizations based in the city, such as the ILO or UNCTAD, and the financial sector. Most notably, Geneva enabled the launch of the very first private and fully commercial investment fund dedicated to microfinance, as well as the first fund manager specialized in microfinance: BlueOrchard.
Others have followed such as responsAbility and Symbiotics. Since then, the microfinance funds industry has grown, estimated today at USD 18 billion, composed of 117 funds run by 59 investment management companies, according to the latest Private Asset Impact Fund Report from Tameo. Nearly 37% of these impact fund assets are managed by Swiss-based companies, thanks to the country spearheading such activities for 25 years.
While the market now includes a variety of non-microfinance fund products (e.g., climate & energy funds, food & agriculture funds, etc.), microfinance funds are highly focused on the poorest clients and reducing gaps in income, consumption, and access to finance. Tameo’s report showcases this approach, with the median microfinance fund reaching 140,000 end-clients, mostly women (65%). The funds finance the loan books of microfinance institutions (MFIs) that serve end-clients with small loans (USD 1,601 on average) that help them to grow their microenterprises, smooth their consumption and build their resilience to shocks like the Covid-19 pandemic.
Thousands of such investable MFIs exist in developing countries, with cumulative credit portfolios of USD 160 billion. Not all of them are attended by privately run microfinance funds. However, for foreign investors, these vehicles remain the prime gateway to advance Goal 1 of the SDG agenda, with Switzerland sitting at the forefront of facilitating these achievements.
News on the industry
Tameo, created in December 2020, held its first public event on 13 October, at the Warwick Hotel in Geneva. The team shared the results of its annual survey on private asset impact funds (i.e., the PAIF Report). With a record sample size of 175 funds, Tameo’s flagship research product brings more transparency through a granular benchmarking tool for fund managers to position their fund products against peers and for investors to follow key trends within the impact investing industry. The full report will be released in November 2021.
* A chronicle of the Building Bridges Community prepared with the support of Sustainable Finance Geneva
and the AlphaMundi Group.
