Marilou van Golstein Brouwers
"Focusing on the interests of microfinance clients is the only way to achieve long-term sustainable financial results"
Since its early days, the microfinance industry has come into its own. The industry has shown that those on low income are bankable and can be offered financial services in a sustainable manner. On the back of the industry's success, some commercial banks in developing countries have followed microfinance institutions' lead and partnered with them to reach out to lower income customers. In other markets, microfinance institutions (MFIs) have transformed into banks with a full licence, allowing them to further expand their services, for example to small and medium-sized enterprises, a sector that creates many jobs, or by providing mortgages for low income groups.
Recently, however, there has also been controversy around microfinance with critical reports about overindebtedness among microfinance clients and the effectiveness of microfinance. And the recurring question is: has financial gain become more important to the sector than sustainable development? As an investor we intend and are able to play a role in the further sustainable development of the microfinance sector. We’d like to share our view how microfinance can remain inclusive, responsible and true to its principles.
In its adolescence
The global microfinance industry is still in its adolescence and as it matures it must address its challenges in a balanced manner. As microfinance becomes integrated into mainstream financial systems, it also faces problems found in the finance industry in general. In some countries strong, even aggressive growth and increased competition has led to overheating and to overindebtedness of clients. Sometimes it seems that the focus on clients has been lost. Personally, this is painful to witness.
Principles for Investors in Inclusive Finance
Triodos Investment Management is one of a core group of investors in microfinance who, together with Her Royal Highness Princess Máxima of the Netherlands, the UN Special Advocate for Inclusive Finance for Development, have set out a new framework for responsible investments in microfinance. Launched in January 2011, the Principles for Investors in Inclusive Finance provide practical guidance to help keep the interest of microfinance’s low income clients at its core. In signing, institutions commit to seven principles for investors, including providing a range of services, fair client treatment, transparency and pursuing balanced long-term returns.
The Principles are aligned with a larger body of international frameworks guiding the actions of financial institutions worldwide. This alignment takes shape by housing them with the United Nations Principles for Responsible Investment (UNPRI).
While the Principles don’t claim to offer a panacea to the problems emerging in the burgeoning microfinance market, they do offer a roadmap that draws us back to the very heart of microfinance: offering financial services responsibly and transparently to people on low incomes, to help enable them to improve their living conditions. This has always been – and will remain – the focal point for our operations as a values-driven investor. We believe that focusing on the interests of clients is the only way to achieve long-term sustainable financial results.