Microfinance has developed into a global industry, impacting up to 200 million clients. From simply funding loans, initiatives now include insurance, savings, education and healthcare. Microfinance is now about much more than just microcredit.
Who benefits from microfinance?
Being excluded from the world’s financial systems is a marker of poverty. Two years ago, 1.7 billion adults in the world’s emerging markets lacked a bank account. Most of these were women.
When people have access to financial products and capital markets, escaping poverty becomes a real possibility. Microfinance, a type of impact investing, becomes relevant.
Microfinance institutions (MFIs) supply loans, insurance and savings to those on low incomes, as well as supporting micro to medium businesses – facilitating activities that generate income and provide a stepping stone away from poverty.
How can microfinance fight poverty?
The benefits of access to capital might see an investment of $1 million over five years benefiting over 55,000 people. Businesses are supported to take on staff, and participants’ living conditions improve across the areas of financial security, education and healthcare.
This sort of inclusive financial system takes a positive step towards development goals and sustainability, while entrepreneurship prospects are encouraged. Simultaneously, investors exercising due diligence see viable prospects. Competitive and stable returns and low default rates have convinced more and more investors of microfinance’s durability.
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You can read a further explanation of microfinance here: https://www.investopedia.com/terms/m/microfinance.asp.
Checks for investors
Investment companies may like to investigate whether institutions have a Code of Conduct and a mechanism for customer complaints, or if they disclose full terms of financial products to clients.
The global success of microfinance
The United Nations’ Principles for Responsible Investment (PRI) scheme places sustainability at the fore in investment decisions. Its Environmental, Social and Governance (ESG) elements are significant drivers of sustainable returns. The PRI has over 2,300 signatories among 60-plus countries, and accounts for over $86 trillion.
In 2015, all 193 UN member states adopted the Sustainable Development Goals (SDGs). These provide signatories with a set of sustainable development targets aiming to end poverty and protect the environment. Foremost on the SDGs’ list of targets is to end global poverty – with microfinance playing a crucial part.