Articles

Invest Your Money Meaningfully and Profitably with Microfinance 

Microfinance pays off in two ways as a financial investment, because it not only generates a financial return for you. With microfinance, you also help people in emerging and developing countries earn a living by starting their own small businesses. 

Investing in microfinance is much more than just a financial return: you help people in emerging and developing countries who would otherwise not have access to important banking services.

There are still many people who have no access to banking services, such as loans. You can help these people with microfinance. Maybe your investment helps a small farmer who needs a loan to add more land. He can make it possible for his children to receive an education with the extra money that he earns. Or, you help a young woman open her own business to provide for her family and send her children to school.

Since the required contributions are often very low, you can achieve a lot with your investment even as a private investor. Microloans range from less than 100 US dollars to several thousand US dollars.

Experience shows that microfinance is low risk

You help others and benefit from the advantages of microfinancing. For example, you can invest in microfinance funds. This gives you the freedom to choose how much money you would like to invest and for how long you would like to invest it. And you do it with manageable risk.

Although borrowers in developing or emerging countries generally lack traditional forms of collateral, the intensive contact between RMs and borrowers can significantly reduce the risk of losses. For example, advisors inform themselves about the exact life circumstances of borrowers and run a credit analysis before they agree to microfinancing.

Close collaboration pays off, and repayment rates are over 90 percent. Successful entrepreneurs often take out small loans later to continue to expand their businesses. If you invest in a fund, the risk of loss is even lower because it's spread out over multiple borrowers.

Microfinance offers much more than loans

Small loans are among traditional microfinancing plans. But now there are also other banking services that are being made accessible to disadvantaged people: savings accounts, insurance, payment transactions, and other products expand the range of possible investments.

This sector has grown considerably in recent years because of the additional selection and because microfinance is becoming more and more interesting to many investors as a sustainable financial investment. For example, Credit Suisse had already managed three billion US dollars in assets by the end of 2015 that were used to fund microfinance institutions.

This is done with investment funds and equity funds that make it possible for investors to directly invest in microenterprises and microfinance institutions.
 

Social micro entrepreneurs are popular with young investors

Millennials are willing to support enterprises that generate a positive social and/or environmental impact in addition to financial returns, or to support companies that are characterized by philanthropic activities. Impact investing is about investing capital in such companies, which in most cases belong to the private sphere.

We find such social enterprises in areas with pressing social challenges, such as education, housing, access to finance, agriculture, and nature conservation. Students, micro entrepreneurs, and small farmers are the end beneficiaries of these enterprises.

Many surveys confirm that Millennials are interested in impact investing. Others decide to pursue careers in social entrepreneurship, working with a foundation or a social investment fund.

In the coming decades, baby boomers will transfer trillions of assets to their Millennial heirs, and given Millenials’ tendency to social engagement, impact investing is expected to grow in scale. It will become a powerful engine of global economic, social, and environmental uplift. For it to develop successfully, though, micro entrepreneurs need to keep identifying opportunities to build companies that use impact capital.

At Credit Suisse, we have long-standing expertise in microfinance and have established partnerships with recognized leaders in this field. Providing access to capital for micro entrepreneurs is at the heart of Credit Suisse’s entrepreneur-driven culture and history. We are proud of the contributions we make in connecting the bottom with the top of the wealth pyramid. Our extended impact investment solutions provide many different ways to combine investments with a broader impact.