Microfinace Beats Blue Chips

Written by Patrick Fisher September 26, 2010 0 comment

Editor’s Note: Garrett Wyse co-authored a feature story in the December issue of Microfinance Focus Magazine titled: Microfinance & Philanthropy, the New Realities. The author’s (Garrett Wyse and Jerome Peloquin) predicted that, as a result of the financial crisis, an investment in a developing country would be more secure and more profitable than a traditional “blue chip,” stock. In this follow up piece, “Microfinance Beats Blue Chips” Mr. Wyse demonstrates proof positive of his predictions.

The report for the fund’s performance dropped into my mail box on Jan 13th. With all the news in the media about various funds performance, the meltdown of various financial instruments markets and the imminent recession in most of the world, I was far from confident about my portfolios performance.

Shares I had bought a number of years back had been performing exactly according to the funds predictions for the past five years, the length of time I have had the shares. Well to be perfectly honest I only have one share, in a microfinance investment fund called Blue Orchard (even this was in a bit of trouble as the fund is managed on a day to day basis by Dexia the EU bank backed by two governments and with a strong pedigree in banking. Alas they were also feeling the pinch, the government had to help prop up the bank, but my fund within the bank was solid, so there was the chance that the contagion from the toxic debts may overwhelm my fund also. Which would have been a double tragedy, because the ultimate people responsible for paying into my fund and keeping its price up are none other than the poorest people in the world).

My money is invested in 99 MFI’s in 30 countries from Argentina to Cameroon and Cambodia to Ukraine, and just about everywhere in between. Since the first of Blue Orchards funds’ inception in 1998, the fund managers stated goal was that the fund would return 200 basis points above LIBOR (six months rate), The London Interbank Offered Rate (a combination of a basket of interest rates). LIBOR itself has fallen in recent months and so I was fully aware that my return would fall in line with this, but would it be able to maintain its targeted return? I need not have worried, my 2008 return was, wait for it, 5.67%, the last three years 5.17%, and the last five years 4.99%. The particular fund I have invested in, the Euro denominated one, started in April 2003 has return 27.04% since its inception.

The Dexia Microcredit fund now invests in MFI’s with over 7.5 million clients let me say that again, 7 and one half million people have access to the funds that I invest, who otherwise would not. In short I am part of a fund facilitating access to credit for up to 7.5 million people at any given time and getting a healthy return annually on that investment, helping people to help themselves and doing very well financially simultaneously.

The original Dexia fund denominated in US$ has fared even better since its inception in September 1998 returning 5.94% per year over the past five years and 65.36 % since inception. If we consider the performance of investment funds, pension funds and property portfolios over the past year, and likely the next few years then there appears to be a compelling argument for these funds to put their client’s money where it is safest, offers a stable return and has a track record of doing so in the toughest of times.