In 2020, microfinance represented 160 billion dollars out of the 71,000 billion generated by global finance in the world. “With 10,000 euros, we change the lives of five to six families for an average of three years,” reports, on a more tangible scale, Raymond Schadeck, president of Luxembourg Microfinance and Development Fund (LMDF). “This is the first year that microfinance has included the impact finance sector in the reports. In reality, it goes beyond that: it’s circular finance,” adds Laura Foschimanaging director of ADA (Support for autonomous development), the consulting organization that identifies project leaders and whispers in the ears of investors.
In 2020, the LMDF had a portfolio of 31.7 million euros invested in microfinance, with an average credit allocation of 1,338 euros through 51 local microfinance institutes in 25 countries, half of them in South America. Among the projects financed in 2020, 50% act in services and 23% in agricultural activities, which are the sectors that are digitizing the most. 66% of the final beneficiaries are women and approximately 379,815 projects have been carried out by microentrepreneurs. In 2020, the fund invested a portfolio of 2.2 million euros in Microfinance Plus projects.
From cash to smartphone
Digital is part of the evolution of microfinance, and the apostrophe now has a Plus because the beneficiaries have skipped a step: that of traditional banking services. “Africa is the continent where there is the least banking inclusion and the most mobile phones. Some countries have already seized the opportunity to develop inclusive digital finance. In Kenya, for example, there is almost no more cash in circulation because all transactions are done with a telephone,” notes Laura Foschi. Along with China and the Philippines, Kenya is one of the digital pioneers in the world, with a mobile penetration rate of 90%. He is even the inventor of mobile banking: 73% of Kenyan adults have an online account, compared to only 65% for Europeans. The hyper-connected 15-24 year olds represent 60% of the unemployed in Africa. Many of them embark on a self-employed activity to get by.
Hence the financing of Internet-related projects such as that of the Kenyan company M-Kopa. It offers portable solar panels connected to a web account, which can be managed remotely and connected to any object: television, smartphone, lamp. “For some families, having light at night means more time to study. Television is inspiration that makes you feel part of this world”, analyzes Raymond Schadeck who regularly goes there to identify the places where microfinance can be most useful.
There are about 4,000 microfinance institutes in the world. In sub-Saharan Africa, in the countries of Central and South America, as well as in Southeast Asia, these local institutes have taken the place of traditional financial organizations which have abandoned the game. “Microentrepreneurs are considered informal, untraceable, too nomadic for banks,” Laura Foschi continues to analyze.
LMDF brings together three types of shareholders: the State, the major local banks, and private operators who have in common that they care less about yield (from 1 to 3.5%) and volumes than about issues based on a scale of long-term social values. Impact investing has aspects of inclusion and sustainability that go beyond an immediate return on investment. However, according to Raymond Schadeck, it is not a question of philanthropy, far from it: “We believe in these projects and in the capacity of the bearers to repay their loan. Not to maximize profits, but to give other candidates access to credit”. Multiplier effect.
The pandemic has undoubtedly accentuated digital needs and has also released new uses. The boom in microcredits to connected businesses and the emergence of open source are already proof of this in Africa. A continent that could well show the way to a society in search of common sense.