Archives

Monthly Archives: May 2014

World Bank Reports That Microcredit Works After All

News0 comments

The World Bank has released a report that examines microfinance in Bangladesh over the longest period yet studied. The results were quite positive:

The results of the basic model unequivocally show that group-based credit programs have significant positive effects in raising household welfare including per capita consumption, household non-land assets and net worth. Microfinance increases income and expenditure, the labor supply of males and females, non-land asset and net worth as well as boys’ and girls’ schooling. Microfinance, especially female credit, also reduces poverty. The results using long-panel data thus confirm most of the earlier findings that microfinance matters a lot, and more for female than for male borrowers.

….Membership in multiple programs has grown steadily from none to 33 percent in 2010/11….Trading is perhaps now saturated with microcredit loans and households have already started to experience diminishing returns. In such circumstances, households must be assisted through skill training and the development of improved marketing networks to expand activities in more rewarding sectors and beyond the local economy; otherwise, microfinance expansion cannot be sustained. In short, the current microfinance policy of credit expansion alone may not be enough to boost income and productivity, and, hence, sustained poverty reduction.

“Examining the dynamics of microcredit programs in Bangladesh” uses long panel survey data spanning over 20 years to study the effects of microcredit programs in Bangladesh. It uses a dynamic panel model to address a number of issues, such as whether credit effects are declining over time, whether market saturation and village diseconomies are taking place, and whether multiple program membership, which is rising as a consequence of microcredit expansion, is harming or benefiting the borrowers. The paper makes the following observations:

•          Group-based credit programs have significant positive effects in raising household welfare including per capita consumption, household non-land assets and net worth;

•          Microfinance increases income and expenditure, the labor supply of males and females, non-land asset and net worth as well as boys’ and girls’ schooling;

•          Microfinance, especially female credit, reduces poverty;

•          Past credit has a higher impact on income and expenditure than current credit;

•          With higher village-level aggregate current male borrowing, the marginal effect of male borrowing on per capita income gets lower.

The paper concludes that the current microfinance policy of credit expansion alone may not be enough to boost income and productivity, and, hence, sustained poverty reduction.

Investors Pouring More Into Impact Investments – JPMorgan

News0 comments

MAY 7, 2014

J.P. Morgan survey finds financial returns and impact satisfy most investors

Microfinance is the fastest growing sector of social impact investing.Microfinance is the fastest growing sector of social impact investing.

Institutional investors expect to commit 19% more capital to impact investments in 2014 than they did last year, according to a recent survey by J.P. Morgan and the Global Impact Investing Network.

Survey participants — 125 fund managers, banks, foundations development finance institutions and pension funds around the world — expected to allocate $12.7 billion this year, and anticipated a 31% increase in the number of deals.

Their fundraising target in 2014 is $4.5 billion, compared with a $2.8 billion target last year.

The survey, the fourth in a series, encompassed the largest-ever respondent group, up 26% this year from 2013, J.P. Morgan and GIIN said in a statement.

“From the results, we see the rise of a vibrant impact investing marketplace, where investors are targeting a wide variety of social, environmental and financial objectives and finding themselves satisfied with the results,” Yasemin Saltuk, research director at J.P. Morgan Social Finance, said in the statement.

RELATED

Donors’ Surprising Thoughts on Hot Topics in Philanthropy

Should foundations get a say in grantees’ operations? How does a charity’s effectiveness affect giving decisions? A Foundation Source survey…

“As collaboration between investors, governments and other key participants continues in 2014, we remain optimistic about the growth and development of the practice.”

Asset Allocations

The survey found that respondents collectively managed $46 billion in impact investments, 70% of which was invested in emerging markets and 30% in developed markets.

Development finance institutions managed 42% of total assets, and fund managers 34% of total assets.

Microfinance and other financial services each accounted for 21% of respondents’ impact investment assets, followed by energy at 11% and housing at 8%.

Allocations took place primarily in private markets, with 44% of assets currently invested through private debt and 24% through private equity.

More investors said they planned to increase the percentage of their portfolios invested in sub-Saharan Africa, Asia and North America, relative to other regions.

In addition, more investors planned to increase the percentage of their portfolios allocated to food and agriculture, health care and financial services (excluding microfinance).

The largest number of investors planned to reduce the percentage of their portfolios allocated to microfinance, relative to other sectors.

Investor Motivation and Measurement

Ninety-one percent of investors surveyed reported financial returns above or in line with their expectations, and 99% said the same about social and/or environmental impact.

More than half of investors acknowledged they were seeking competitive financial returns from their impact investment commitments.

Investors said they were chiefly motivated to make impact investments by responsibility, efficiency and client demand.

Shortage of quality deals and lack of appropriate capital remained their top challenges, they reported.

According to the survey, 95% of respondents reported that they used metrics to measure the social and/or environmental impact of their investments. And more than two-thirds said standardized impact metrics were important to the growth of impact investing.