Speciali Asset Class

Two of the main arguments in the past for micro nance as an asset class2 were the low correlation to traditional nancial markets and high portfolio quality. While micro nance for the most part was relatively una ected during the crisis that hit global nancial markets starting around 2008, the low correlation may begin to moderate as micro nance and MFIs become more interwoven in mainstream nancial systems. High repayment rates remain a hallmark of micro nance. There have been a number of crises in countries across the world which warn that high asset quality cannot be taken for granted; however, the sector overall has emerged stronger after dealing with these setbacks, as well as with the help of industry-wide principles like the Smart Campaign’s Client Protection Principles, multi-stakeholder standard setting bodies like the Social Performance Task Force, country-speci c credit bureaus and self- regulatory bodies, and other infrastructure.

Perhaps more consequential than low correlation or high asset quality are the many decades of infrastructure-building and investment and governance-strengthening support by donors, social investors and other sources of patient risk capital. As a result, MFIs have developed into well-run, professional institutions that employ tens of thousands of people often from the same demographics as the clients they are looking to serve. The sector has largely preserved its focus on the bottom of the pyramid and there is a growing emphasis on new nancial products that seek to provide more value to poor clients, like savings, insurance and remittances. As argued in a recent whitepaper on the future of micro nance3, the success of the industry in achieving scale and attracting capital is a result of a four-decades-long process of product development and testing, gaining insights into customer needs, earning client trust, building infrastructure, training, collecting data, benchmarking, and developing a robust supporting ecosystem. It is no longer debated that the poor can constructively use and be sustainably provided with a comprehensive range of financial services. Nevertheless, there is more work to be done to have a positive, measurable impact on poverty alleviation, gender equality, and other Sustainable Development Goals4.

Over the coming years, “the micro nance industry” will continue to blend into traditional financial systems as MFIs grow and develop, and more mainstream commercial banks acquire MFIs or launch subsidiaries dedicated to micro nance. Digital financial technologies will continue to reduce costs and the need for in-person interaction. MFIs as distinct institutions will become less crucial to providing financial services to their target populations, or will themselves evolve into more than just financial service providers to broaden the offerings of products and services to better meet the needs of their clients. MFIs are uniquely placed to address many social and environmental issues given their proximity to and deep relationships with their clients. Patient capital and likeminded investors that support innovation and target skill development, institutional capacity building and infrastructure required for better serving the bottom of the pyramid will remain essential for social value creation and deepening impact, in micro nance and beyond.