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  • FARE IMPRESA CON IL MICROCREDITO UNA SFIDA POSSIBILE
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Maria Doiciu | Senior consultant in access to nance and microfinance Eurom Consultancy –Romania

Abstract:

Investing in micro nance, can not only pursue social and sometimes environmental objectives but can often be pro table, more banks and commercial
investors are looking to the micro nance
market potential and at the risks related to the

investment in microfinance. Direct or indirect investment approaches tested by the more than 225 commercial banks and formal investors as well as the pro t records of successful players are encouraging more investors to invest in the massive potential of the micro nance market.

Investing in microfinance

Recently the de nition or re-de nition of micro nance was a subject of debate of main sector’s actors in Europe both Micro nance networks, European Micro nance Network and Micro nance Centre were involved in the process and the proposed new de nition submitted to the European Commission is:

Micro nance: all those activities oriented to provide access to financial services of individual amounts normally smaller than the EU per capita GDP, to socially or nancially excluded people (generally without collateral nor credit history), lacking access to traditional sources of nance, with a social and not for-pro t objective, on terms adapted to the analysed nancial capacity and coupled with access to high quality financial education and/or business development services.

During early In the 1990s the investments made by the international micro nance investors in Eastern, Central Europe and Balkans, e.g. World vision fund, Opportunity international, CHF International or HEKS Swiss, alongside with transfer of know-how, contributed decisively to the establishment of a sustainable micro nance sectors “ with social and not for-pro t objective” in the region.

Since 2009, the European Commission nanced programs Progress, JASMINE and currently EaSI micro nance implemented in partnership with European Investment Bank/ European Investment Fund are investing and providing nancial resources and guarantees as well as technical assistance to the European Micro nance Institutions and Microcredit Banks aiming at improvement of their capacity to outreach and serve the start-up entrepreneurs, self-employed and microenterprises.

Due to the growing demand for microcredits and lack of donations and social investments or government involvement, the Micro nance Institutions, supported by the enabling legal framework enacted by the policy makers, have been nanced by impact investors more concerned with results-based outcomes that either improve access to nance of underserved, social and economic inclusion of the beneficiaries or the environment while still garnering economic returns.

In this respect the new developments of the Romanian Micro nance market may offer a number of examples and lessons to be learned to those banks or investors now considering the microfinance market. The development drift towards commercialization of the Romanian MFIs may be seen in the Figure 1.

Figure1. Romanian MF sector landscape 2017; Source: Eurom Consultancy and Studies

The commercialization of the Romanian microfinance sector and rapid growth of the MFIs leaded to the transformation of the largest Romanian MFI into the first Romanian microcredit bank, banking investments in the micro nance institutions and partnerships of the banks with microfinance institutions for and improved outreach of the underserved.

The market-based solutions designed by the investors and micro nance institutions to address economic gaps within society, alongside with their social responsibility commitment is actually making a positive difference in the communities, being the base of growth of the micro nance sectors in all European countries.

2 http://www.cgap.org/publications/commercial-banks-and-microfinance-evolving-models-success

Commercial banks and investors are increasingly investigating themselves, entering the micro nance market because they see sustainable profit and growth opportunities within an increasing competition faced in their traditional retail markets, aiming to explore new potential markets that can generate growth in client numbers at acceptable pro t margins.

Consultative Group to Assist the Poor (CGAP) estimates that there are up to 3 billion potential clients in the microfinance market and despite of the high growth rate of the sector, a significant number of potential clients remain unserved. A recent CGAP1 survey identified over 225 commercial banks and other formal financial institutions that are engaged in microfinance.

If for most of them, investing in micro nance has been highly pro table, however success is not guaranteed, and some commercial investors have attempted to serve this market and failed because they did not understand the market or tried to move too quickly and unprepared.

There are currently two main approaches to invest in microfinance:

  • The banks / investors are entering the market directly by expanding their retail operations to reach the

    microcredit clients by creating an internal unit or buying an existing or establishing a separate microfinance vehicle company, such as a service company or specialized financial institution.

  • The banks/ investors are entering the market indirectly by working with existing micro nance providers.

    1 http://www.cgap.org/publications/commercial-banks-and-microfinance-evolving-models-success

    Commercial investors that wish to take advantage of the opportunities in micro nance should carefully evaluate specifically their own goals, the potential market size and competition, the regulatory environment, and how suitable for the micro nance are their current infrastructure and systems.

    The relations with the investors, funders and customers, as included in the clauses of the European Code of Good Conduct for microcredit provision Chapter I2, ensures that the sector operates with transparent and pan-EU reporting standards, it gives some reassurance that the sector operates according to sound business practices and principles, and that it is well governed.

    Looking to and learning from the experience of the existing traditional social investors in the micro nance sector, the decision of entering this market is a long-term business endeavor and needs real commitment. No investor should expect to make quick pro t from micro nance. The evolving investments and partnership models presented above and the pro t records of successful players are encouraging more investors to invest in the massive potential of the micro nance market, but Muhammad Yunus’s statement should be carefully assess and observed:

    “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people”

    Muhammad Yunus

    2 http://ec.europa.eu/regional_policy/sources/thefunds/doc/code_bonne_conduite_en.pdf