The Blurb On The Back:
Small Money Big Impact brilliantly illustrates what microfinance is, how it works and all the ways microloans and impact investing can be a socially and financially rewarding asset class.
Impact investing is a global megatrend and is reshaping the way people invest as pension funds, insurance companies, foundations, family offices and private investors jump on board.
However, more than two billion people still lack access to basic financial services so opportunities abound. This first-of-its-kind guide offers in-depth, yet accessible coverage to making a social and environmental impact, while benefitting from competitive, consistent and uncorrelated returns. Returns that have proven themselves for well over a decade.
Gain expert-level understanding of both the processes and investment vehicles used in microfinance as well as an awareness of the power this asset class has to enrich the impoverished.
– Explore the global impact investing phenomenon.
– Learn how microloans work, and how they make a difference.
– Discover why investors are increasingly leaning into impact investing.
– Consider the factors that inform impact investing decisions.
Small Money Big Impact has your complete solution to using a small amount of capital to make the world a better place and sustain a robust portfolio.
The Review (Cut For Spoilers):
Peter A Fanconi is Chairman and Patrick Scheurle the CEO of Blue-Orchard Finance (an investment management company specialising in micro-finance) and this informative book (which, unfortunately, seems aimed at persuading people to invest in micro-finance companies and contains very little criticism of the structure or problems it may cause) they aim to explain the microfinance market and show the benefits its brought to people in developing economies.
Like a lot of ordinary people who don’t work in finance, I was unaware of what micro-finance was until 2006 when Professor Muhammad Yunnus was awarded the Nobel Peace Prize for his work in founding Gameen Bank with the Central Bank of Bangladesh to implement the provision of micro-finance in Bangladesh. Since then, micro-finance has grown both as a financial structure and as a media buzz-word in the fight against global poverty and I picked this book up because I wanted to understand more about how it actually works in practice – especially as larger institutions start to pick up on it and begin to invest in larger scale – and both the benefits and disadvantages it can bring to the countries in which it operates.
Fanconi and Scheurle begin the book by saying that they want to be “objective” in explaining developments in microfinance to the broader public. In their defence, this book – despite containing a lot of inevitable financial jargon – is easy to follow and understand and I appreciated how the authors took the time to set out what a lot of the principles underlying micro-finance mean (including the double bottom line and impact investing and how it differs from philanthropy) to financial concepts such as the different types of micro-finance institution, the services they perform and then going into lending methodologies, how late debt and loan defaults are handled, interest rates and measurements of performance. On that level – if you are looking for a book that explains the basics of micro-finance and how for-profit micro-finance institutions work – then this book is quite successful and I came away from it with more of an idea of how the market operates.
Also interesting is how the authors describe the issues with setting up banking facilities within developing countries, including the issues they face with trying to assess the credit-worthiness of applicants thanks to a lack of central credit databases on which they can assess a borrower’s ability to repay and how this is countered by a reliance on communities to essentially police themselves by making sure that fellow borrowers stay honest through social bonds and also through the training of loan officers who can form bonds with borrowers and help them to manage their situation.
Where I was less convinced was in the objectivity of the authors in assessing the benefits of micro-finance and what it brings to the communities in which it operates. The authors illustrate the book with numerous case studies of people in different countries who used micro-finance, what they used it for and how they benefitted from it. What’s missing is the counterpoint case studies from people who used it and did not benefit from it, e.g. because they could not keep up repayments. This is important because Fanconi and Scheurle do address the main criticism of micro-finance in that interest rates can be very high – as high as 25% – but seem to dismiss it as an inevitability given the high costs that micro-finance institutions have in running their operations and a breezy assurance that most borrowers are able to repay their loans despite such high interest rates. This may be true, but I would have been interested in seeing a comparison of default rates for micro-finance institutions as against credit unions and some considerations of whether the latter may be better from the perspective of borrowers (although, of course, there is no investment return to be made from a credit union).
Also notable is the fact that Fanconi and Scheurle’s focus on micro-finance institutions overlooks some of the most recent developments in the micro-finance market, namely peer-to-peer lending platforms where those in the west can make an immediate loan to developing world recipients. It would have been interesting to see some analysis of what (if any) impact this has on developing market and the ability of micro-finance institutions to make a return – including whether they are effectively undercutting rates, especially as the authors point out the importance of cell phone technology in underpinning financial infrastructure within developing countries.
Ultimately, I finished this book with more of an understanding of micro-finance from an investment point of view but not from a social impact point of view – in fact I felt that it only told half the story. As such, although I think it’s worth dipping into this if you’re new to the subject and want to understand the key terms and key capitalist drivers within it, I would look elsewhere for a more comprehensive take on the subject matter.
Thanks to the Amazon Vine Programme for the review copy of this book.