Sustainability as a core value

Triodos Microfinance Fund only invests in financial institutions that aim for a well-balanced mix between people, planet, and profit. This basis for the investment policy pursued by Triodos Microfinance Fund is anchored in the analysis and decision making process.

47%

percentage
of clients
in rural areas

The fund uses a scorecard for this sustainability assessment. This tool was first developed in 2010. Since then, the sector has evolved and the fund invests in a broader range of institutions, from pure MFIs to banks that also provide loans to small and medium enterprises. To better assess these different institutions, the tool was reviewed and updated in 2014. The new version will be launched in 2015. As part of the review process, relevant industry initiatives, such as UNPRI Principles for Investors in Inclusive Finance, the Universal Standards for Social Performance Management, and the SMART Campaign’s Client Protection Principles were taken into account.

The new scorecard consists of 25 Environmental, Social and Governance (ESG) related questions, grouped in five dimensions: Governance, Management & Staff, Product Range, Responsible Finance and Environment.

Below, we describe in more detail how Triodos Microfinance Fund analyses and assesses these themes, using examples from the portfolio.

Transparency

Triodos Microfinance Fund analyses how the MFI handles over-indebtedness and transparency. The fund also assesses how the MFI aligns credits with the repayment capacity of clients, what policy the MFI pursues with respect to interest rates and how products and the related liabilities are communicated to the client. The Client Protection Principles provide a detailed description of these elements. 92% of the MFIs represented in the portfolio (2013: 88%) have signed these principles.

Fair and transparent interest rates

Triodos Microfinance Fund analyses how the MFI handles over-indebtedness and transparency. The fund also assesses how the MFI aligns credits with the repayment capacity of clients, what policy the MFI pursues with respect to interest rates and how products and the related liabilities are communicated to the client. The Client Protection Principles provide a detailed description of these elements. 92% of the MFIs represented in the portfolio (2013: 88%) have signed these principles.

Financial education

Financial education and training of (potential) clients is becoming increasingly important for MFIs. KMF LLC, in Kazakhstan, provides financial literacy training to both clients and non-clients, giving non-clients the opportunity to become clients after they complete the training.

Diverse product offering

Microfinance customers are interested in more than just taking out loans. They also want to be able to save, take out insurance and transfer money. A growing number of MFIs is able to meet these requirements. Caja Rural de Ahorra y Credito Quillabamba (CREDINKA) in Peru, for example, is active in regions where access to finance is limited and where poverty levels are among the highest in the country. The institution developed a community savings scheme for remote Indian communities in the Andes and a savings product for women in the Puno-Cusco corridor.

% of MFIs offering other financial services

% of MFIs offering other financial services (bar chart)

Source: Triodos Investment Management

Portfolio allocation per market segment

Portfolio allocation per market segment (pie chart)

Source: Triodos Investment Management

Small and medium-sized businesses

Triodos Microfinance Fund assesses whether MFIs provide loans to SMEs. Such businesses contribute directly to the development of the local economy through the employment that they provide and the taxes that they pay. A growing number of MFIs in the fund’s portfolio focus on this target group, including Advans Banque Congo. This young institution is part of the Advans network and started operations in 2009. It targets SMEs in and around Kinshasa.

Alternative distribution channels

Alternative distribution channels, such as mobile phones and service counters, are becoming increasingly important. These channels make financial services available for more people, also in less accessible areas, and at lower costs. Banco Pichincha, in Ecuador, makes a great example of how this works in practice. In three years time, this bank implemented 15,000 non-bank correspondents in rural Ecuador and managed to give 300,000 previously unbanked people access to savings accounts and debit cards.

Microfinance portfolio Triodos Microfinance Fund

Agricultural sector

A large part of the population of developing and emerging countries makes its income in the agricultural sector. This sector, in particular, has only very limited access to adequate financial products. Uncertain cash flows and higher risks, such as failed harvests and natural disasters, make MFIs cautious about providing credit to this sector. However, Triodos Microfinance Fund encourages MFIs to service this extremely important sector and uses its international network to support MFIs here.

As part of this initiative, the fund also highlights the importance of sustainable agricultural practices. Examples of institutions in the portfolio that focus specifically on this sector are ESAF Microfinance and Investment Private Limited in India (with 70% of its loan portfolio in agriculture), Kompanion in Kyrgyzstan (70%), and Contactar in Colombia (60%).

Attention for the environment

Triodos Microfinance Fund also considers the efforts by MFIs to make environmental protection a priority. Raising awareness is the first step. Many MFIs in the fund’s portfolio organise training courses and other activities in order to educate their clients about environmental protection and the contribution that they can make.

% of MFIs in the portfolio focussing on the environment

% of MFIs in the portfolio focussing on the environment (bar chart)

* List of exclusion criteria used by MFIs when deciding whether or not to provide loans to customers.
Source: Triodos Investment Management

Triodos Microfinance Fund also analyses whether MFIs offer green products and services aimed at sustainable farming and energy production. Examples are loans for biogas installations, solar panels, and coffee tree renovation. Fondo de Desarrollo Local (FDL) in Nicaragua is a great example, with the highest score on environment in our sustainability scorecard and more than 10% of its loan portfolio in ‘green’ products.

The table in the Appendix shows a number of core indicators for each of the MFIs in the portfolio of Triodos Microfinance Fund. Examples include the number of savings and loan clients, the average loan amount and the percentage of female clients and clients in rural areas. The table below shows these indicators on the fund level.

Core indicators MFIs in the portfolio of Triodos Microfinance Fund

Download XLS

 

2014

2013

 

 

 

Source: Triodos Investment Management

Total number of loan clients reached by MFIs in the portfolio

8,186,334

5,771,464

Total number of savings clients reached by MFIs in the portfolio

6,384,915

5,818,281

Average loan (EUR)

1,390

1,456

Percentage of female loan clients

70%

62%

Percentage of clients in rural areas

47%

49%

Number of people employed by MFIs in the portfolio

86,034

66,700

 

 

 

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