By Waka Itagaki
This article is the second in a series from this author on the topic of impact investing. For Waka Itagaki’s earlier post on reducing transaction costs in development impact bonds, please click here.
Introduction and Background
The role that impact investors are playing in international development is increasingly growing. The amount of assets under management (AUM), the total market value of investments managed by financial institutions, in emerging countries was $36.4 billion in 2015. This is larger than the net Official Development Assistance (ODA) provided by the United States. International development actors should pay attention to this shift and become acquainted with the work of impact investors. One way to do this is through reading the annual impact investor surveys conducted by the Global Impact Investing Network (GIIN).
GIIN is a nonprofit organization that supports activities, education, and research that accelerate the development of a coherent impact investing industry. GIIN has conducted annual impact investor surveys since 2009 by leveraging its network of impact investors, and the surveys provide information on the current situation of impact investors. However, these surveys fail to acknowledge how impact investors are changing over time. Moreover, there is not much literature by other stakeholders that analyzes the data and discusses trends in impact investing in a consumable way. This article fills this gap by analyzing six GIIN surveys from 2009 to 2015 to illustrate how impact investors are changing.
By Erin Nealer
Microfinance was the trendiest new player in economic development for the first decade of the 2000s. In 2004 Vinod Khosla, founder and CEO of Sun Microsystems, called microfinance “one of the most important economic phenomena since the advent of capitalism.” In 2006 Muhammad Yunus, founder of the Bangladesh-based Grameen Bank, was awarded the Nobel Peace Prize for his work in establishing micro-loans for entrepreneurs struggling to rise out of poverty. Microlending programs such as Kiva, World Vision Micro, and Zidisha have sprung up to take advantage of the internet, creating peer-to-peer lending programs where individuals can supply small loans or pool funds for larger loans for entrepreneurs all over the world. The ability of microfinance institutions (MFIs) to reach those experiencing the greatest need and to provide long-term solutions for extreme poverty, however, remains uncertain.
The term “microfinance” refers to a broad umbrella of economic opportunities with one common objective: increasing access to financial services for those who are unable to access traditional banks. The theory is that small loans, savings accounts, insurance programs, and other basic financial services will provide the structure necessary for low-income individuals to lift themselves out of poverty, begin businesses, and provide for their families. MFIs that focus on underserved populations – particularly women, those living with HIV/AIDS, and populations in inaccessible rural areas – have the potential to enact great change in the lives of individuals, enabling them to participate in the local and global economy.
Women submit applications for microloans in Ghana. While microfinance is a popular and relatively new vehicle for increasing access to financial services, the lasting impact of microloans on business profits and overall income is negligible. Photo by Rachel Strohm via Flickr.
By Helen Moser
The assumption of many Microfinance Institutions (MFIs) is that providing microfinance to women is not only a social imperative – it is also one that may yield higher returns to capital, as women are typically more credit-constrained than men due to their limited access to formal financial services. Women in developing countries are 20 percent less likely than men to have access to formal credit. Additionally, women tend to be poorer than men on average and have less collateral to offer.
MFIs rose in popularity in the late 1990s and early 2000s, and many MFIs like the Grameen Bank began strategies of lending primarily to women that continue today. Over 80 percent of the poorest MFI clients worldwide (those who live on less than $1.25/day) are women. MFIs and their supporters often claim women make better use of loaned or granted funds than men do. But in actuality, microfinance may not be an effective solution to raise women’s business profits from microenterprise, nor their incomes. Continue reading