Investing in microfinance as a channel for other impact finance themes challenges and opportunities

  • Patrick GOODMAN, Innpact
  • Sylvia WISNIWSKI, Finance in Motion
  • Frederik Jan VAN DEN BOSCH, FMO
  • Tim RADJY, AlphaMundi
  • Guillaume BONNEL, Lombard Odier
  • Sachin VANKALAS, LuxFLAG


Patrick GOODMAN started the session by asking whether microfinance can be an appropriate channel for other impact investment themes. While some investors are exiting these types of investments and moving to more direct impact investments, he is looking to find ways in which the microfinance industry can also offer investors a delivery channel.

Sylvia WISNIWSKI, as CEO of Finance in Motion, brought in the perspective of an impact assessment manager. Her organisation focuses on microfinance, SME finance and green finance, looking at energy, water and organic agriculture. She explained that microfinance seems well-suited as a channel for impact investment: the sector focuses on the bottom-of-the-pyramid, is close to both SMEs and low-income households, has a social mission and is an expert in high volume - low value transactions. She wonders, however, whether mainstreaming has taken off some of the sector's innovative edge needed to engage with other impact investment themes such as water, health, energy and education. Moreover, addressing such topics often requires different skills, in terms of new partnerships, different investment formats and different client profiles. She specifically mentioned alternative funding streams, with subsidies for impact investment building on a different tradition than debt and equity financing for microfinance. Moreover, impact investments can be politically sensitive and bring MFIs under public or political scrutiny. Wisniwski concluded that MFIs can do more, but we need be careful not to overburden MFIs.

Frederik Jan VAN DEN BOSCH supported Wisniwski's view, adding that proper support to MFIs is needed. He explained how FMO's mission and vision towards impact investment, reducing ecological foot prints and green, inclusive growth is pushing the organisation to re-think its strategy towards MFIs. Out-of-the-box thinking can help to leverage MFIs market knowledge, networks and outreach to achieve wider impacts. It can also help to improve situations outside the normal sphere of influence of the financial sector, and he mentioned the example of ship-recycling in Bangladesh.

Making such new links between microfinance and other impact themes also requires new partnerships. Van Den Bosch gave the example of agricultural investments where agri-traders were now becoming small farmer financiers by default and MFIs can play a role in financing their increasing working capital needs. In conclusion, he believes MFIs can act as a suitable channel, but require ‘an additional layer' of knowledge, networks, technical skills and regulation.

Tim RADJY expressed a different view. While agreeing that MFIs have proven their value; most notably in demonstrating the poor are bankable, we now need to move beyond MFIs if we want to achieve impacts in other fields. In his view, MFIs can only pay lip service to other impact themes as going deeper requires a different skills set. His impact investment fund takes a more direct investment strategy focusing on dedicated suppliers of impact-relevant services. He provided three examples to support his view. Firstly, he showed how dedicated student loan providers in Mexico are better suited to service students as they can offer lower interest, longer grace periods and innovative partnerships with education providers (in this case a first-loss guarantee fund). A second example was from the Mexican mortgage market. In this case, dedicated providers proved better suited to offer appropriate products in terms of more affordable interest rates, payment schedules and loan maturity. Lastly, he provided examples from the solar energy sector where they helped a solar panel company to set up a pay-plan and partner with a Mobile Network Operator (MNO), reaching a vastly larger client base than when working through typical MFIs. Another solar investee has already sold more than 1 million solar lanterns in East Africa, a scale which would be hard to achieve with most MFIs.

Guillaume BONNEL provided the perspective of a private bank. Lombard Odier developed an innovative impact investment fund to meet the demand for impact investment opportunities. The fund is set up in two pockets, a core and satellite pocket, where the core focusses on large-scale funds investing in microfinance and the satellite focuses on impact investments requiring more innovative strategies with a higher performance potential. As such, capacities available in the core pocket are leveraged for success and impact for the satellite pocket.


The discussion first focussed on the issue of interest rates charged to microentrepreneurs. Radjy mentioned that in some cases this is difficult to control by investors. He proposes investors concerned about high interest rates should focus on MFIs that meet specific requirements in terms of their interest rate policy, or to reduce capital costs to MFIs once certain impact or operational requirements are met.

The panel then focused on the issue of impact measurement. Wisniwski explained that their objectives in terms of impact are driven by their own investors. Next to quantifiable indicators such as gender, type of product, urban/rural split and penetration of low-income brackets, they also look at qualitative aspects of performance through interviews and focus groups. Bonnel explained that it is important to build bridges to make investors and especially bankers understand social impacts. Van Den Bosch supported this statement and added that private funds can learn valuable lessons from experienced impact investors such as FMO. It is important to clearly define goals of investors, as this needs to translate in targets established in funding agreements and efforts changed into investments.

Van Den Bosch also mentioned the importance of auditing non-financial reporting of MFIs. Reporting is not always transparent and can be manipulated. Wisniwski added that auditing firms are moving into impact measurement. As this field is still emerging, Finance in Motion conducts its own checks in the field. Impact measurement requires a new set of qualitative skills which still need to be developed among auditors, especially "to look beyond the figures". Based on this discussion, Sachin VANKALAS briefly explained about LuxFLAG's microfinance label and how labelling allows investment funds to be transparent and credible to their investors. He stated that with regulation entering the field of impact reporting, labelling and auditing firms will be further pushed to develop appropriate tools. Popular third-party impact assessment standards include Microrate and Planet Rating ratings for MFIs, the Global Impact Investing Rating System (GIIRS) used by AlphaMundi, the Social Return On Investments (SROI), the Progress out of Poverty Index (PPI) developed by Grameen, and LuxFLAG.

Lastly, the discussion turned to the time frame before impact of projects is measured. Wisniwski explained that this depends on the characteristics of the assets. Direct investments in service suppliers and innovative approaches can have a time horizon of up to 15 years. Van den Bosch mentioned the possibility of looking back with clients and measuring retrospectively. It is important to consider that while your impact will increase over time, you also need to consider whether it can still be fully attributed to your intervention.