CHAPTER 12
Discussion of Resultsand Conclusions

Photo showing young girl child standing near the blackboard. Her right hand is pointing to the word “one” on the board.

Microfinance is not charity. This is business: business with a social objective, which is to help people get out of poverty.

Muhammad Yunus1

Microfinance perfectly synchronizes the interests of borrowers, investors and society. This is an outstanding achievement – and unprecedented in the world of asset management.

New technologies, such as mobile money transfer systems or the use of satellite data, will only serve to further boost the productivity of an already effective operative business.

In the years to come, an increasing number of people will be able to benefit from an even more efficient microfinance sector. At the same time, microfinance will become an important part of professional investment portfolios, thanks to its attractive risk‐return patterns.

12.1 WIN‐WIN‐WIN

The significant decrease in global poverty since the creation of the MDGs in 2000 can undoubtedly also be credited to microfinance, a powerful and effective tool for the financial integration of the poor segments of the population and households. Society in general and investors in microfinance in particular also benefit from it, for the simple fact that social and financial return are not mutually exclusive, but can evidently be met simultaneously.

Another of microfinance's convincing aspects is that it respects and trusts its micro entrepreneurs. They are appreciated as equal partners on their way out of poverty and in all their unwavering endeavors to improve their economic situation. They can use their skills to the best of their abilities and exploit their potential. At the same time they are keen not to undermine the trust that has been placed in them. The default rate of micro loans is insignificantly low.

Society benefits from micro entrepreneurs in many ways. On the one hand, they create employment, which multiplies its economic impact. On the other, women in particular use the income that is generated via micro loans very prudently. They use it for their children's education or to improve their family's healthcare, which in turn sustainably strengthens social development.

Investors can achieve a sense of satisfaction by making a social contribution, but they also gain financially. The attractive returns of microfinance go hand in hand with outstanding diversification properties. Microfinance investment vehicles, therefore, are particularly valuable in the context of a portfolio. Its stable financial return has established microfinance as an asset class that is being used by institutional and increasingly by private investors alike.

One of microfinance's feats – unprecedented in the world of asset management – is that it perfectly synchronizes and lines up the interests of borrowers, investors and society.

12.2 ONWARDS AND UPWARDS

New technologies such as mobile money transfer systems or the use of satellite data will influence the world of microfinance and boost its efficiency. Data and services will be available around the clock, electronically, free of charge and in a respectful way. The value chain will continue to be optimized, costs will be lowered and competition will increase. It would come as no surprise to find that most of these future developments will have been instigated by MFIs and smaller banks. New technologies, rapid progress and innovations will be the brainchildren of those enterprises that are not bogged down by burdens of the past. Micro entrepreneurs will undoubtedly profit from this development too, as it will facilitate and accelerate the way loans can be accessed.

As a result of the attractive risk‐return ratio, more and more private and institutional investors will provide capital. Demand will surge and emphasize the importance of microfinance as an asset class in its own right.

The range of microfinance services will be widened quite substantially to adapt to the rising demand. Stronger diversification and specialization of investment opportunities will be the natural consequence of this development. Lending facilities as such and increasingly also savings products, insurance services, training and medical care – but also questions concerning renewable energies – will gain center stage. Global enterprises from sectors such as healthcare, insurance, the food industry, agriculture, technology and telecommunication will recognize that micro entrepreneurs are their clients of the future. Their care will be of the utmost importance.

The number of people who are excluded from the financial system will drop significantly and the number of people living in poverty will continue to decrease. However, poverty will not simply vanish off the face of the earth, but instead transfer to countries and regions of slow growth that profit only marginally from technological advances. In the years to come, microfinance will therefore assume two main tasks: firstly, to support those who have been neglected, and secondly, to pave the way for innovation – in a new world order in which financial institutions are becoming key protagonists, while classic banking will become less important.

All in all the following developments are to be expected:

  • Absolute poverty will decline distinctly.
  • Large parts of the population will have access to financial services.
  • The geopolitical relevance of impact investing will continue to rise and exert a stabilizing effect on entire regions and countries.
  • The level of education and medical care in developing countries will be improved.
  • Innovative financial products will serve to mitigate the negative effects of climate change.
  • MFIs will develop into efficient and effective financial service providers.
  • For banks and companies, takeovers and joint ventures will be instrumental in securing the last mile.
  • Financial service providers in developing countries will act as drivers of innovation for technological development.
  • Microfinance and impact investing will assume a key role in the world of investment.

In all that microfinance has achieved, its core idea remains that it is based on trust. Trust creates performance, not the other way around. It is this trust that people in need have to be awarded to empower themselves to progress economically and live a life of dignity. For this reason, further explanatory efforts are imperative to continue to raise awareness of the enormous potential of microfinance.

Small Money – Big Impact!

NOTES

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